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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020March 31, 2021 or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to                         
Commission File Number: 0-16533
ProAssurance Corporation
(Exact name of registrant as specified in its charter)
Delaware63-1261433
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer Identification No.)
Delaware63-1261433
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
100 Brookwood Place,Birmingham,AL35209
(Address of principal executive offices)(Zip Code)
(205)877-4400
(Registrant’s telephone number,

including area code)
(Former name, former address and former

fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per sharePRANew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐   No  ☒
As of OctoberApril 30, 2020,2021, there were 53,889,76553,953,399 shares of the registrant’s common stock outstanding.


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Glossary of Terms and Acronyms

When the following terms and acronyms appear in the text of this report, they have the meanings indicated below.
TermMeaning
AADAnnual aggregate deductible
TermAOCIMeaning
AADAnnual aggregate deductible
AOCIAccumulated other comprehensive income (loss)
ASUAccounting Standards Update
BEATBase erosion anti-abuse tax
BoardBoard of Directors of ProAssurance Corporation
BOLIBusiness owned life insurance
CARES ActCoronavirus Aid, Relief and Economic Security Act
Council of Lloyd'sThe governing body for Lloyd's of London
CODM
CODMChief Operating Decision Maker
CommutationAn agreement between a ceding insurer and the reinsurer that provides for the valuation, payment, and complete discharge of all obligations between the parties under a particular reinsurance contract
COVID-19
COVID-19Coronavirus Disease 2019
DPAC
DPACDeferred policy acquisition costs
Eastern ReEastern Re, LTD, S.P.C.
EBUBEarned but unbilled premium
ECO/XPLExtra-contractual obligations/excess of policy limit claims
E&OErrors and Omissions
FALFunds at Lloyd's
FASBFinancial Accounting Standards Board
FHLBFederal Home Loan Bank
FHLMCFederal Home Loan Mortgage Corporation
FNMAFederal National Mortgage Association
GAAPGenerally accepted accounting principles in the United States of America
GILTIGlobal intangible low-taxed income
GNMAGovernment National Mortgage Association
HCPLHealthcare professional liability
IBNRIncurred but not reported
Inova ReInova Re, LTD, S.P.C.
IRSInternal Revenue Service
LIBOR
LIBORLondon Interbank Offered Rate
LLCLimited liability company
Lloyd'sLloyd's of London market
LPLimited partnership
Medical Technology LiabilityMedical technology and life sciences products liability
Mortgage LoansTwo ten-year mortgage loans collectively with an original borrowing amount of approximately $40 million, each entered into by a subsidiary of ProAssurance
NAV
NAVNet asset value
NOL
NOLNet operating loss
NORCALNORCAL Group
NORCAL MutualNORCAL Mutual Insurance Company
NRSRONationally recognized statistical rating organization
NYSENew York Stock Exchange
OCIOther comprehensive income (loss)

PCAOBPublic Company Accounting Oversight Board
PDRPremium deficiency reserve
TermMeaning
PCAOBPublic Company Accounting Oversight Board
PDRPremium deficiency reserve
PREP ActThe Public Readiness and Emergency Preparedness Act
Revolving Credit AgreementProAssurance's $250 million revolving credit agreement
ROEReturn on equity
ROURight-of-use
SEC
SECSecurities and Exchange Commission
SPASpecial Purpose Arrangement
SPCSegregated portfolio cell
Specialty P&CSpecialty Property and Casualty
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TermMeaning
Syndicate 1729Lloyd's of London Syndicate 1729
Syndicate 6131Lloyd's of London Syndicate 6131, a Special Purpose Arrangement with Lloyd's of London Syndicate 1729
Syndicate Credit AgreementUnconditional revolving credit agreement with the Premium Trust Fund of Syndicate 1729
TCJA
TCJATax Cuts and Jobs Act H.R.1 of 2017
U.K.United Kingdom of Great Britain and Northern Ireland
ULAEUnallocated loss adjustment expense
VIEVariable interest entity


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Caution Regarding Forward-Looking Statements
Any statements in this Form 10-Q that are not historical facts are specifically identified as forward-looking statements. These statements are based upon our estimates and anticipation of future events and are subject to significant risks, assumptions and uncertainties that could cause actual results to vary materially from the expected results described in the forward-looking statements. Forward-looking statements are identified by words such as, but not limited to, "anticipate," "believe," "estimate," "expect," "hope," "hopeful," "intend," "likely," "may," "optimistic," "possible," "potential," "preliminary," "project," "should," "will" and other analogous expressions. There are numerous factors that could cause our actual results to differ materially from those in the forward-looking statements. Thus, sentences and phrases that we use to convey our view of future events and trends are expressly designated as forward-looking statements as are sections of this Form 10-Q that are identified as giving our outlook on future business.
Forward-looking statements relating to our business include among other things: statements concerning future liquidity and capital requirements, investment valuation and performance, return on equity, financial ratios, net income, premiums, losses and loss reserve, premium rates and retention of current business, competition and market conditions, the expansion of product lines, the development or acquisition of business in new geographical areas, the pricing or availability of acceptable reinsurance, actions by regulators and rating agencies, court actions, legislative actions, payment or performance of obligations under indebtedness, payment of dividends and other matters.
These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following factors that could affect the actual outcome of future events:
Ÿchanges in general economic conditions, including the impact of inflation or deflation and unemployment;
Ÿour ability to maintain our dividend payments;
Ÿregulatory, legislative and judicial actions or decisions that could affect our business plans or operations, including changes in interpretations of certain coverages as a result of COVID-19;
Ÿthe enactment or repeal of tort reforms;
Ÿformation or dissolution of state-sponsored insurance entities providing coverages now offered by ProAssurance which could remove or add sizable numbers of insureds from or to the private insurance market;
Ÿchanges in the interest and tax rate environment, including the actions taken by the federal government and Federal Reserve in response to COVID-19;
Ÿresolution of uncertain tax matters and changes in tax laws, including the impact of the TCJA and CARES Act;
Ÿchanges in laws or government regulations regarding financial markets or market activity that may affect our business;
Ÿchanges in the ability, or perception thereof, of the U.S. government to meet its obligations that may affect the U.S. economy and our business;
Ÿperformance of financial markets affecting the fair value of our investments or making it difficult to determine the value of our investments;
Ÿchanges in requirements or accounting policies and practices that may be adopted by our regulatory agencies, the FASB, the SEC, the PCAOB or the NYSE that may affect our business;
Ÿchanges in laws or government regulations affecting the financial services industry, the property and casualty insurance industry or particular insurance lines underwritten by our subsidiaries or by Syndicates 1729 and 6131;
Ÿthe effect on our insureds, particularly the insurance needs of our insureds, and our loss costs, of changes in the healthcare delivery system and/or changes in the U.S. political climate that may affect healthcare policy or our business;
Ÿconsolidation of our insureds into or under larger entities which may be insured by competitors, or may not have a risk profile that meets our underwriting criteria or which may not use external providers for insuring or otherwise managing substantial portions of their liability risk;
Ÿthe effect of cyclical insurance industry trends on our underwriting, including demand and pricing in the
insurance and reinsurance markets in which we operate;
Ÿuncertainties inherent in the estimate of our loss and loss adjustment expense reserve and reinsurance recoverable;
Ÿchanges in the availability, cost, quality or collectability of insurance/reinsurance;
Ÿthe results of litigation, including pre- or post-trial motions, trials and/or appeals we undertake;
Ÿeffects on our claims costs from mass tort litigation that are different from that anticipated by us;
Ÿallegations of bad faith which may arise from our handling of any particular claim, including failure to settle;

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Ÿloss or consolidation of independent agents, agencies, brokers or brokerage firms;
Ÿchanges in our organization, compensation and benefit plans;
Ÿchanges in the business or competitive environment may limit the effectiveness of our business strategy and impact our revenues;
Ÿour ability to retain and recruit senior management and other qualified personnel;
Ÿthe availability, integrity and security of our technology infrastructure or that of our third-party providers of technology infrastructure, including any susceptibility to cyber-attacks which might result in a loss of information or operating capability;
Ÿthe impact of a catastrophic event, including the recent COVID-19 pandemic, as it relates to our business and insurance operations, investment results, Lloyd's Syndicates and our insured risks;
Ÿthe impact of the COVID-19 pandemic and related economic conditions on our premium volume, loss reserves, investment portfolio, asset valuations, business operations and workforce;
Ÿthe impact of a catastrophic man-made event, such as acts of terrorism, and acts of war;war and civil and political unrest;
Ÿthe effects of terrorism-related insurance legislation and laws;
Ÿguaranty funds and other state assessments;
Ÿour ability to achieve continued growth through expansion into new markets or through acquisitions or business combinations;
Ÿfailure to complete our planned acquisition of NORCAL for any reason including but not limited to failure to obtain required regulatory approvals, or failure of any other condition set forth in the acquisition agreement, or our inability to fund the transaction; and if completed, our failure to successfully integrate NORCAL to achieve expected results or synergies after closing;synergies;
Ÿchanges to the ratings assigned by rating agencies to our holding company or insurance subsidiaries, individually or as a group;
Ÿprovisions in our charter documents, Delaware law and state insurance laws may impede attempts to replace or remove management or may impede a takeover;
Ÿstate insurance restrictions may prohibit assets held by our insurance subsidiaries, including cash and investment securities, from being used for general corporate purposes;
Ÿtaxing authorities can take exception to our tax positions and cause us to incur significant amounts of legal and accounting costs and, if our defense is not successful, additional tax costs, including interest and penalties; and
Ÿexpected benefits from completed and proposed acquisitions may not be achieved or may be delayed longer than expected due to business disruption; loss of customers, employees or key agents; increased operating costs or inability to achieve cost savings and synergies; and assumption of greater than expected liabilities, among other reasons.
Additional risks, assumptions and uncertainties that could arise from our membership in the Lloyd's market and our participation in Lloyd's Syndicates include, but are not limited to, the following:
Ÿmembers of Lloyd's are subject to levies by the Council of Lloyd's based on a percentage of the member's underwriting capacity, currently a maximum of 3%, but can be increased by Lloyd's;
ŸSyndicate results can be affected by decisions made by the Council of Lloyd's which the management of Syndicate 1729 and Syndicate 6131 have little ability to control, such as a decision to not approve the business plan of Syndicate 1729 or Syndicate 6131, or a decision to increase the capital required to continue operations, and by our obligation to pay levies to Lloyd's;
ŸLloyd's insurance and reinsurance relationships and distribution channels could be disrupted or Lloyd's trading licenses could be revoked, making it more difficult for a Lloyd's Syndicate to distribute and market its products;
Ÿrating agencies could downgrade their ratings of Lloyd's as a whole; and
ŸSyndicate 1729 and Syndicate 6131 operations are dependent on a small, specialized management team, and the loss of their services could adversely affect the Syndicate’s business. The inability to identify, hire and retain other highly qualified personnel in the future could adversely affect the quality and profitability of Syndicate 1729’s or Syndicate 6131's business.
Our results may differ materially from those we expect and discuss in any forward-looking statements. The principal risk factors that may cause these differences are described in "Item 1A, Risk Factors" in our December 31, 20192020 report on Form 10-

K, in "Item 1A, Risk Factors" included in this report10-K and other documents we file with the SEC, such as our current reports on Form 8-K and our regularquarterly reports on Form 10-Q.
We caution readers not to place undue reliance on any such forward-looking statements, which are based upon conditions existing only as of the date made, and advise readers that these factors could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. Except as required by law or regulations, we do not undertake and specifically decline any obligation to
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publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

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TABLE OF CONTENTS
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - SEPTEMBER 30, 2020March 31, 2021 AND DECEMBER 31, 20192020
8
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (UNAUDITED) - THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2021 AND 2020 AND 2019
9
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) - THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2021 AND 2020 AND 2019
1110
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2021 AND 2020 AND 2019
1211
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1413
BASIS OF PRESENTATION
1413
FAIR VALUE MEASUREMENT
2115
INVESTMENTS
3123
INCOME TAXESRETROACTIVE INSURANCE CONTRACTS
3730
GOODWILLINCOME TAXES
3830
GOODWILL
31
RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
3932
COMMITMENTS AND CONTINGENCIES
4134
LEASES
4235
DEBT
4336
SHAREHOLDERS' EQUITY
4437
VARIABLE INTEREST ENTITIES
4638
EARNINGS (LOSS) PER SHARE
4638
SEGMENT INFORMATION
4739
SUBSEQUENT EVENT
43
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
5244
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
11697
ITEM 4.
CONTROLS AND PROCEDURES
119100
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
119100
ITEM 1A.
RISK FACTORS
119100
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
121100
ITEM 6.
EXHIBITS
121101
SIGNATURE
123102


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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
September 30,
2020		 December 31,
2019		March 31,
2021		December 31,
2020
Assets   Assets
Investments   Investments
Fixed maturities, available-for-sale, at fair value (amortized cost, $2,298,913 and $2,241,304, respectively; allowance for expected credit losses, $552 as of current period end)$2,386,085
 $2,288,785
Fixed maturities, trading, at fair value (cost, $52,357 and $46,772, respectively)53,081
 47,284
Equity investments, at fair value (cost, $127,719 and $227,873, respectively)129,385
 250,552
Fixed maturities, available-for-sale, at fair value (amortized cost, $2,509,623 and $2,361,575, respectively; allowance for expected credit losses, NaN as of March 31, 2021 and $552 as of December 31, 2020)Fixed maturities, available-for-sale, at fair value (amortized cost, $2,509,623 and $2,361,575, respectively; allowance for expected credit losses, NaN as of March 31, 2021 and $552 as of December 31, 2020)$2,563,273 $2,457,531 
Fixed maturities, trading, at fair value (cost, $44,819 and $47,907, respectively)Fixed maturities, trading, at fair value (cost, $44,819 and $47,907, respectively)45,151 48,456 
Equity investments, at fair value (cost, $74,083 and $113,709, respectively)Equity investments, at fair value (cost, $74,083 and $113,709, respectively)77,537 120,101 
Short-term investments377,539
 339,907
Short-term investments280,993 337,813 
Business owned life insurance67,393
 66,112
Business owned life insurance66,932 67,847 
Investment in unconsolidated subsidiaries312,848
 358,820
Investment in unconsolidated subsidiaries299,360 310,529 
Other investments (at fair value, $37,714 and $36,018, respectively, otherwise at cost or amortized cost)40,650
 38,949
Other investments (at fair value, $69,251 and $44,116, respectively, otherwise at cost or amortized cost)Other investments (at fair value, $69,251 and $44,116, respectively, otherwise at cost or amortized cost)71,621 47,068 
Total Investments3,366,981
 3,390,409
Total Investments3,404,867 3,389,345 
Cash and cash equivalents231,948
 175,369
Cash and cash equivalents214,835 215,782 
Premiums receivable, net237,894
 249,540
Premiums receivable, net210,560 201,395 
Receivable from reinsurers on paid losses and loss adjustment expenses13,697
 12,739
Receivable from reinsurers on paid losses and loss adjustment expenses10,451 14,370 
Receivable from reinsurers on unpaid losses and loss adjustment expenses391,637
 390,708
Receivable from reinsurers on unpaid losses and loss adjustment expenses393,420 385,087 
Prepaid reinsurance premiums45,159
 42,796
Prepaid reinsurance premiums34,802 35,885 
Deferred policy acquisition costs53,038
 55,567
Deferred policy acquisition costs47,616 47,196 
Deferred tax asset, net59,585
 44,387
Deferred tax asset, net67,699 57,105 
Real estate, net29,990
 30,410
Real estate, net30,594 30,529 
Operating lease ROU assets18,925
 21,074
Operating lease ROU assets18,219 19,013 
Intangible assets, net67,284
 70,757
Intangible assets, net64,173 65,720 
Goodwill49,610
 210,725
Goodwill49,610 49,610 
Other assets126,749
 111,118
Other assets127,692 143,766 
Total Assets$4,692,497

$4,805,599
Total Assets$4,674,538 $4,654,803 
Liabilities and Shareholders' Equity   Liabilities and Shareholders' Equity
Liabilities   Liabilities
Policy liabilities and accruals   Policy liabilities and accruals
Reserve for losses and loss adjustment expenses$2,407,488
 $2,346,526
Reserve for losses and loss adjustment expenses$2,438,250 $2,417,179 
Unearned premiums415,184
 413,086
Unearned premiums375,246 361,547 
Reinsurance premiums payable46,117
 52,946
Reinsurance premiums payable31,039 39,998 
Total Policy Liabilities2,868,789
 2,812,558
Total Policy Liabilities2,844,535 2,818,725 
Operating lease liabilities20,194
 22,051
Operating lease liabilities19,168 20,116 
Other liabilities188,631
 173,256
Other liabilities205,097 182,039 
Debt less unamortized debt issuance costs284,990
 285,821
Debt less unamortized debt issuance costs284,422 284,713 
Total Liabilities3,362,604
 3,293,686
Total Liabilities3,353,222 3,305,593 
Shareholders' Equity   Shareholders' Equity
Common shares (par value $0.01 per share, 100,000,000 shares authorized, 63,214,475 and 63,117,235 shares issued, respectively)632
 631
Common shares (par value $0.01 per share, 100,000,000 shares authorized, 63,277,721 and 63,217,708 shares issued, respectively)Common shares (par value $0.01 per share, 100,000,000 shares authorized, 63,277,721 and 63,217,708 shares issued, respectively)633 632 
Additional paid-in capital387,386
 384,551
Additional paid-in capital388,924 388,150 
Accumulated other comprehensive income (loss) (net of deferred tax expense (benefit) of $17,488 and $9,795, respectively)68,285
 36,955
Accumulated other comprehensive income (loss) (net of deferred tax expense (benefit) of $11,065 and $19,386, respectively)Accumulated other comprehensive income (loss) (net of deferred tax expense (benefit) of $11,065 and $19,386, respectively)41,522 75,227 
Retained earnings1,289,552
 1,505,738
Retained earnings1,306,199 1,301,163 
Treasury shares, at cost (9,325,180 shares as of each respective period end)(415,962) (415,962)Treasury shares, at cost (9,325,180 shares as of each respective period end)(415,962)(415,962)
Total Shareholders' Equity1,329,893

1,511,913
Total Shareholders' Equity1,321,316 1,349,210 
Total Liabilities and Shareholders' Equity$4,692,497
 $4,805,599
Total Liabilities and Shareholders' Equity$4,674,538 $4,654,803 
See accompanying notes.

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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Capital (Unaudited)
(In thousands)
 
ProAssurance Shareholders' Equity
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal
Balance at December 31, 2020$632 $388,150 $75,227 $1,301,163 $(415,962)$1,349,210 
Common shares issued for compensation and effect of shares reissued to stock purchase plan— 8 — — — 8 
Share-based compensation— 1,024 — — — 1,024 
Net effect of restricted and performance shares issued1 (258)— — — (257)
Dividends to shareholders— — — (2,699)— (2,699)
Other comprehensive income (loss)— — (33,705)— — (33,705)
Net income (loss)— — — 7,735 — 7,735 
Balance at March 31, 2021$633 $388,924 $41,522 $1,306,199 $(415,962)$1,321,316 
  ProAssurance Shareholders' Equity  
  Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total
Balance at July 1, 2020 $632
 $386,365
 $61,130
 $1,442,225
 $(415,962) $1,474,390
Common shares issued for compensation and effect of shares reissued to stock purchase plan —
 8
 —
 —
 0
 8
Share-based compensation —
 1,017
 —
 —
 —
 1,017
Net effect of restricted and performance shares issued —
 (4) —
 —
 —
 (4)
Dividends to shareholders —
 —
 —
 (2,694) —
 (2,694)
Other comprehensive income (loss) —
 —
 7,155
 —
 —
 7,155
Net income (loss) —
 —
 —
 (149,979) —
 (149,979)
Balance at September 30, 2020 $632

$387,386

$68,285

$1,289,552

$(415,962)
$1,329,893
             
  Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total
Balance at December 31, 2019 $631
 $384,551
 $36,955
 $1,505,738
 $(415,962) $1,511,913
Cumulative-effect adjustment-
ASU 2016-13 adoption*		 —
 —
 —
 (4,076) —
 (4,076)
Common shares issued for compensation and effect of shares reissued to stock purchase plan —
 683
 —
 —
 —
 683
Share-based compensation —
 3,061
 —
 —
 —
 3,061
Net effect of restricted and performance shares issued 1
 (909) —
 —
 —
 (908)
Dividends to shareholders —
 —
 —
 (22,078) —
 (22,078)
Other comprehensive income (loss) —
 —
 31,330
 —
 —
 31,330
Net income (loss) —
 —
 —
 (190,032) —
 (190,032)
Balance at September 30, 2020 $632

$387,386

$68,285

$1,289,552

$(415,962)
$1,329,893
* See Note 1 for discussion of accounting guidance adopted during the period.
Continued on the following page.


Continued from the previous page.
 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total
Balance at July 1, 2019 $631
 $385,200
 $31,729
 $1,581,273
 $(417,277) $1,581,556
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal
Balance at December 31, 2019Balance at December 31, 2019$631 $384,551 $36,955 $1,505,738 $(415,962)$1,511,913 
Cumulative-effect adjustment-
ASU 2016-13 adoption		Cumulative-effect adjustment-
ASU 2016-13 adoption		— — — (4,076)— (4,076)
Common shares issued for compensation and effect of shares reissued to stock purchase plan —
 20
 —
 —
 —
 20
Common shares issued for compensation and effect of shares reissued to stock purchase plan— 33 — — — 33 
Share-based compensation —
 (11) —
 —
 —
 (11)Share-based compensation— 1,017 — — — 1,017 
Net effect of restricted and performance shares issued —
 (28) —
 —
 —
 (28)Net effect of restricted and performance shares issued1 (869)— — — (868)
Dividends to shareholders —
 —
 —
 (16,677) —
 (16,677)Dividends to shareholders— — — (16,691)— (16,691)
Other comprehensive income (loss) —
 —
 7,405
 —
 —
 7,405
Other comprehensive income (loss)— — (41,865)— — (41,865)
Net income —
 —
 —
 17,193
 —
 17,193
Balance at September 30, 2019 $631
 $385,181
 $39,134
 $1,581,789
 $(417,277) $1,589,458
Net income (loss)Net income (loss)— — — (21,954)— (21,954)
Balance at March 31, 2020Balance at March 31, 2020$632 $384,732 $(4,910)$1,463,017 $(415,962)$1,427,509 
            
 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total
Balance at December 31, 2018 $630
 $384,713
 $(16,911) $1,571,847
 $(417,277) $1,523,002
Cumulative-effect adjustment-
ASU 2018-07 adoption		 —
 —
 —
 (444) —
 (444)
Common shares issued for compensation and effect of shares reissued to stock purchase plan —
 832
 —
 —
 —
 832
Share-based compensation —
 2,309
 —
 —
 —
 2,309
Net effect of restricted and performance shares issued 1
 (2,673) —
 —
 —
 (2,672)
Dividends to shareholders —
 —
 —
 (49,992) —
 (49,992)
Other comprehensive income (loss) —
 —
 56,045
 —
 —
 56,045
Net income —
 —
 —
 60,378
 —
 60,378
Balance at September 30, 2019 $631
 $385,181
 $39,134
 $1,581,789
 $(417,277) $1,589,458
See accompanying notes.

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Table of Contents
ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
(In thousands, except per share data)
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2020 2019 2020 2019 20212020
Revenues       Revenues
Net premiums earned$194,559
 $215,788
 $605,708
 $633,086
Net premiums earned$187,358 $203,855 
Net investment income16,924
 23,681
 55,877
 70,038
Net investment income15,017 20,830 
Equity in earnings (loss) of unconsolidated subsidiaries4,853
 (1,277) (22,065) (7,240)Equity in earnings (loss) of unconsolidated subsidiaries6,788 (1,562)
Net realized investment gains (losses):       Net realized investment gains (losses):
Impairment losses0
 (66) (1,745) (202)Impairment losses0 (1,817)
Portion of impairment losses recognized in other comprehensive income (loss) before taxes0
 36
 237
 124
Portion of impairment losses recognized in other comprehensive income (loss) before taxes0 654 
Net impairment losses recognized in earnings0
 (30) (1,508) (78)Net impairment losses recognized in earnings0 (1,163)
Other net realized investment gains (losses)8,838
 1,164
 1,658
 47,142
Other net realized investment gains (losses)8,849 (27,510)
Total net realized investment gains (losses)8,838
 1,134
 150
 47,064
Total net realized investment gains (losses)8,849 (28,673)
Other income1,723
 2,548
 5,668
 7,419
Other income2,005 2,251 
Total revenues226,897
 241,874
 645,338
 750,367
Total revenues220,017 196,701 
Expenses       Expenses
Net losses and loss adjustment expenses145,581
 161,614
 521,412
 489,808
Net losses and loss adjustment expenses149,785 164,832 
Underwriting, policy acquisition and operating expenses:       Underwriting, policy acquisition and operating expenses:
Operating expense32,419
 32,778
 96,650
 100,729
Operating expense31,522 34,773 
DPAC amortization27,014
 29,083
 83,528
 85,231
DPAC amortization24,929 27,283 
SPC U.S. federal income tax expense871
 0
 1,573
 0
SPC U.S. federal income tax expense356 222 
SPC dividend expense (income)3,854
 3,621
 7,988
 1,375
SPC dividend expense (income)1,742 (508)
Interest expense3,881
 4,274
 11,725
 12,850
Interest expense3,212 4,129 
Goodwill impairment161,115
 0
 161,115
 0
Total expenses374,735
 231,370
 883,991
 689,993
Total expenses211,546 230,731 
Income (loss) before income taxes(147,838) 10,504
 (238,653) 60,374
Income (loss) before income taxes8,471 (34,030)
Provision for income taxes:       Provision for income taxes:
Current expense (benefit)11,314
 3,013
 (26,621) 4,864
Current expense (benefit)3,008 (1,852)
Deferred expense (benefit)(9,173) (9,702) (22,000) (4,868)Deferred expense (benefit)(2,272)(10,224)
Total income tax expense (benefit)2,141
 (6,689) (48,621) (4)Total income tax expense (benefit)736 (12,076)
Net income (loss)(149,979) 17,193
 (190,032)��60,378
Net income (loss)7,735 (21,954)
Other comprehensive income (loss), after tax, net of reclassification adjustments7,155
 7,405
 31,330
 56,045
Other comprehensive income (loss), after tax, net of reclassification adjustments(33,705)(41,865)
Comprehensive income (loss)$(142,824) $24,598
 $(158,702) $116,423
Comprehensive income (loss)$(25,970)$(63,819)
Earnings (loss) per share       Earnings (loss) per share
Basic$(2.78) $0.32
 $(3.53) $1.12
Basic$0.14 $(0.41)
Diluted$(2.78) $0.32
 $(3.53) $1.12
Diluted$0.14 $(0.41)
Weighted average number of common shares outstanding:       Weighted average number of common shares outstanding:
Basic53,889
 53,762
 53,854
 53,732
Basic53,918 53,808 
Diluted53,918
 53,856
 53,896
 53,831
Diluted53,998 53,885 
Cash dividends declared per common share$0.05
 $0.31
 $0.41
 $0.93
Cash dividends declared per common share$0.05 $0.31 
See accompanying notes.

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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 Nine Months Ended September 30
 2020 2019
Operating Activities   
Net income (loss)$(190,032) $60,378
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Goodwill impairment161,115
 0
Depreciation and amortization, net of accretion16,168
 14,073
(Increase) decrease in cash surrender value of BOLI(1,281) (1,557)
Net realized investment (gains) losses(150) (47,064)
Share-based compensation3,052
 2,323
Deferred income tax expense (benefit)(22,000) (4,868)
Policy acquisition costs, net of amortization (net deferral)2,529
 (3,983)
Equity in (earnings) loss of unconsolidated subsidiaries22,065
 7,240
Distributed earnings from unconsolidated subsidiaries29,844
 11,690
Other2,605
 2,026
Other changes in assets and liabilities:   
Premiums receivable6,486
 (22,478)
Reinsurance related assets and liabilities(11,079) (27,185)
Other assets(13,297) (3,552)
Reserve for losses and loss adjustment expenses60,962
 95,928
Unearned premiums2,098
 44,049
Other liabilities4,088
 1,783
Net cash provided (used) by operating activities73,173
 128,803
Investing Activities   
Purchases of:   
Fixed maturities, available-for-sale(689,429) (553,186)
Equity investments(63,386) (74,649)
Other investments(26,432) (24,088)
Funding of qualified affordable housing project tax credit partnerships(1,307) (322)
Investment in unconsolidated subsidiaries(32,768) (53,630)
Proceeds from sales or maturities of:   
Fixed maturities, available-for-sale635,392
 416,805
Equity investments174,130
 149,720
Other investments27,279
 24,583
Net sales or (purchases) of fixed maturities, trading(4,893) (6,339)
Return of invested capital from unconsolidated subsidiaries26,831
 35,902
Net sales or maturities (purchases) of short-term investments(37,549) 37,975
Unsettled security transactions, net change22,805
 15,211
Purchases of capital assets(6,665) (7,133)
Purchases of intangible assets(1,198) 0
Repayments under Syndicate Credit Agreement0
 13,450
Other(811) (16)
Net cash provided (used) by investing activities21,999
 (25,717)
Continued on the following page.   


Three Months Ended March 31
 20212020
Operating Activities
Net income (loss)$7,735 $(21,954)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization, net of accretion6,722 4,734 
(Increase) decrease in cash surrender value of BOLI915 (457)
Net realized investment (gains) losses(8,849)28,673 
Share-based compensation1,031 1,011 
Deferred income tax expense (benefit)(2,272)(10,224)
Policy acquisition costs, net of amortization (net deferral)(420)(599)
Equity in (earnings) loss of unconsolidated subsidiaries(6,788)1,562 
Distributed earnings from unconsolidated subsidiaries5,658 1,585 
Other(661)(703)
Other changes in assets and liabilities:
Premiums receivable(9,165)(22,442)
Reinsurance related assets and liabilities(12,290)(4,623)
Other assets13,151 14,268 
Reserve for losses and loss adjustment expenses21,071 (15,478)
Unearned premiums13,699 30,202 
Other liabilities(837)(17,604)
Net cash provided (used) by operating activities28,700 (12,049)
Investing Activities
Purchases of:
Fixed maturities, available-for-sale(342,197)(227,503)
Equity investments(38,232)(23,136)
Other investments(33,252)(6,065)
Investment in unconsolidated subsidiaries(5,319)(17,180)
Proceeds from sales or maturities of:
Fixed maturities, available-for-sale195,266 180,698 
Equity investments82,048 157,652 
Other investments12,026 6,026 
Net sales or (purchases) of fixed maturities, trading3,163 (407)
Return of invested capital from unconsolidated subsidiaries17,618 1,481 
Net sales or maturities (purchases) of short-term investments56,836 (7,441)
Unsettled security transactions, net change27,025 12,656 
Purchases of capital assets(1,243)(2,750)
Other0 (2,206)
Net cash provided (used) by investing activities(26,261)71,825 
Continued on the following page.
 Nine Months Ended September 30
 2020 2019
Continued from the previous page.   
Financing Activities   
Repayments of Mortgage Loans(1,127) (1,086)
Dividends to shareholders(35,978) (76,574)
Capital contribution received from (return of capital to) external segregated portfolio cell participants(581) (983)
Other(907) (2,703)
Net cash provided (used) by financing activities(38,593) (81,346)
Increase (decrease) in cash and cash equivalents56,579
 21,740
Cash and cash equivalents at beginning of period175,369
 80,471
Cash and cash equivalents at end of period$231,948
 $102,211
Significant Non-Cash Transactions   
Dividends declared and not yet paid$2,694
 $16,677
Operating ROU assets obtained in exchange for operating lease liabilities$478
 $3,729
11

Table of Contents
Three Months Ended March 31
 20212020
Continued from the previous page.
Financing Activities
Repayments of Mortgage Loans(390)(376)
Dividends to shareholders(2,686)(16,714)
Capital contribution received from (return of capital to) external segregated portfolio cell participants(53)204 
Other(257)(1,090)
Net cash provided (used) by financing activities(3,386)(17,976)
Increase (decrease) in cash and cash equivalents(947)41,800 
Cash and cash equivalents at beginning of period215,782 175,369 
Cash and cash equivalents at end of period$214,835 $217,169 
Significant Non-Cash Transactions
Dividends declared and not yet paid$2,699 $16,691 
See accompanying notes.

12
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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021


1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of ProAssurance Corporation and its consolidatedwholly owned subsidiaries (ProAssurance, PRA or the Company). The financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included. ProAssurance’s results for the ninethree months ended September 30, 2020March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.2021. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes contained in ProAssurance’s December 31, 20192020 report on Form 10-K. In connection with its preparation of the Condensed Consolidated Financial Statements, ProAssurance evaluated events that occurred subsequent to March 31, 2021 for recognition or disclosure in its financial statements and notes to financial statements. Please see Note 15 for additional information.
ProAssurance operates in 5 reportable segments as follows: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, Lloyd's Syndicates and Corporate. For more information on the Company's segment reporting, including the nature of products and services provided and financial information by segment, refer to Note 13.14.
Certain insignificant prior period amounts have been reclassified to conform to the current period presentation.
Accounting Policies
The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosures related to these amounts at the date of the financial statements. The Company evaluates these estimates and assumptions on an ongoing basis based on current and historical developments, market conditions, industry trends and other information that the Company believes to be reasonable under the circumstances, including the potential impacts of the COVID-19 pandemic (see "Item 1A, Risk Factors" in ProAssurance's December 31, 2020 report on Form 10-K for additional information). The Company can make no assurance that actual results will conform to its estimates and assumptions; reported results of operations may be materially affected by changes in these estimates and assumptions.
The significant accounting policies followed by ProAssurance in making estimates that materially affect financial reporting are summarized in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2020 report on Form 10-K.
Accounting Changes Adopted
Clarifying the Interactions between Investments - Equity Securities, Investments - Equity Method and Joint Ventures, and Derivatives and Hedging (ASU 2020-01)
Effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, the FASB amended guidance that clarifies the accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. ProAssurance adopted the guidance beginning January 1, 2021, and adoption had no material effect on ProAssurance's results of operations, financial position or cash flows.
Accounting Changes Not Yet Adopted
ProAssurance is not aware of any accounting changes not yet adopted as of March 31, 2021 that could have a material impact on its results of operations, financial position or cash flows.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2021
Credit Losses
ProAssurance's premiums receivable and reinsurance receivables are exposed to credit losses but to-date have not experienced any significant amount of credit losses. See Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K for further information on how the Company estimates and measures expected credit losses on its premiums receivable and reinsurance receivables. ProAssurance's available-for-sale fixed maturity investments are also exposed to credit losses. See Note 3 for information on ProAssurance's allowance for expected credit losses on it's available-for-sale fixed maturities.
ProAssurance’s premiums receivable on its Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 is reported net of the related allowance for expected credit losses of $6.1 million in each period. The following tables present a roll forward of the allowance for expected credit losses related to the Company's premiums receivable for the three months ended March 31, 2021 and 2020.
(In thousands)Premiums Receivable, NetAllowance for Expected Credit Losses
Balance, December 31, 2020$201,395 $6,131 
Provision for expected credit losses105 
Write offs charged against the allowance(232)
Recoveries of amounts previously written off78 
Balance, March 31, 2021$210,560 $6,082 
(In thousands)Premiums Receivable, NetAllowance for Expected Credit Losses
Balance, December 31, 2019$249,540 $1,590 
Cumulative-effect adjustment, before tax*5,160 
Provision for expected credit losses88 
Write offs charged against the allowance(689)
Recoveries of amounts previously written off48 
Balance, March 31, 2020$266,822 $6,197 
*Due to the adoption of ASU 2016-13, ProAssurance recorded a cumulative-effect adjustment to beginning retained earnings as of January 1, 2020 to increase its consolidated allowance for expected credit losses related to its premiums receivable. See Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K.
ProAssurance’s expected credit losses associated with its reinsurance receivables (related to both paid and unpaid losses) were nominal in amount as of March 31, 2021 and December 31, 2020. ProAssurance has other financial assets and off-balance-sheet commitments that are exposed to credit losses; however, expected credit losses associated with these assets and commitments were nominal in amount as of March 31, 2021 and December 31, 2020.
Other LiabilitiesAccounting Changes Adopted
Other liabilities consistedClarifying the Interactions between Investments - Equity Securities, Investments - Equity Method and Joint Ventures, and Derivatives and Hedging (ASU 2020-01)
Effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, the FASB amended guidance that clarifies the accounting for the transition into and out of the following:
(In thousands) September 30, 2020 December 31, 2019
SPC dividends payable $64,237
 $55,763
Unpaid shareholder dividends 2,694
 16,676
All other 121,700
 100,817
Total other liabilities $188,631
 $173,256

SPC dividends payable representsequity method and measuring certain purchased options and forward contracts to acquire investments. ProAssurance adopted the undistributed equity contractually payable to the external cell participants of SPCs operated byguidance beginning January 1, 2021, and adoption had no material effect on ProAssurance's Cayman Islands subsidiaries, Inova Re and Eastern Re.
Unpaid shareholder dividends represent common stock dividends declared by ProAssurance's Board that had not yet been paid as of September 30, 2020.
Accounting Policies
The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosures related to these amounts at the date of the financial statements. The Company evaluates these estimates and assumptions on an ongoing basis based on current and historical developments, market conditions, industry trends and other information that the Company believes to be reasonable under the circumstances. The Company can make no assurance that actual results will conform to its estimates and assumptions; reported results of operations, may be materially affected byfinancial position or cash flows.
Accounting Changes Not Yet Adopted
ProAssurance is not aware of any accounting changes in these estimates and assumptions.
Asnot yet adopted as of March 31, 2021 that could have a result of the COVID-19 pandemic, the Company is reevaluating certain of these estimates and assumptions which could result in material changes toimpact on its results of operations, including, but not limited to, higher losses and loss adjustment expenses, lower premium volume, asset impairment charges, declines in investment valuations, reductions in audit premium estimates, deferred tax valuation allowances and increases in the allowance for expected credit losses related to available-for-sale securities, premiums receivable and reinsurance receivables. The extent to which the COVID-19 pandemic impacts the Company's business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. These factors include, but are not limited to, the duration, spread, severity, reemergenceposition or mutation of the COVID-19 pandemic, development and wide-scale distribution of medicines or vaccines that effectively treat the virus, the effects of the COVID-19 pandemic on the Company's insureds, the loss environment, the healthcare industry, the labor market and Lloyd's, the actions and stimulus measures taken by governments and governmental agencies, and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, the Company may experience an impact to its business as a result of any economic recession that has occurred or may occur in the future.

cash flows.
14
13
Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

Except as added below, the significant accounting policies followed by ProAssurance in making estimates that materially affect financial reporting are summarized in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance’s DecemberMarch 31, 2019 report on Form 10-K.2021
Due to the adoption of ASU 2016-13 at the beginning of 2020, ProAssurance began following the accounting policies described below:
Credit Losses
ProAssurance's premiums receivable and reinsurance receivables are exposed to credit losses but to-date have not experienced any significant amount of credit losses. ProAssuranceSee Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K for further information on how the Company estimates and measures expected credit losses on its premiums receivablesreceivable and reinsurance receivablesreceivables. ProAssurance's available-for-sale fixed maturity investments are also exposed to credit losses. See Note 3 for information on a collective (pool) basis when similar risk characteristics exist, and the Company will reassess its pools each reporting period to ensure all receivables within the pool continue to share similar risk characteristics. If the Company determines that a receivable does not share risk characteristics with its other receivables within a pool, it will evaluate that receivableProAssurance's allowance for expected credit losses on an individual basis. ProAssurance measures expected credit losses associated with its premium receivables at the segment level as each segment’s premium receivables share similar risk characteristics including term, type of financial asset and similar historical and expected credit loss patterns. ProAssurance measures expected credit losses associated with its reinsurance receivables (related to both paid and unpaid losses) at the consolidated level as its reinsurance receivables share similar risk characteristics including type of financial asset, type of industry and similar historical and expected credit loss patterns.
ProAssurance measures expected credit losses over the contractual term of each pool utilizing a loss rate method. Historical internal credit loss experience for each pool is the basis for the Company’s assessment of expected credit losses; however, the Company may also consider historical credit loss information from external sources. In addition to historical credit loss data, the Company also considers reasonable and supportable forecasts of future economic conditions in its estimate of expected credit losses by utilizing industry and macroeconomic factors that it believes most relevant to the collectability of each pool.it's available-for-sale fixed maturities.
ProAssurance’s premiums receivable on its Condensed Consolidated Balance SheetSheets as of September 30,March 31, 2021 and December 31, 2020 is reported net of the related allowance for expected credit losses of $6.6 million.$6.1 million in each period. The following tables present a roll forward of the allowance for expected credit losses related to the Company's premiums receivable for the three and nine months ended September 30,March 31, 2021 and 2020.
(In thousands)Premiums Receivable, NetAllowance for Expected Credit Losses
Balance, December 31, 2020$201,395 $6,131 
Provision for expected credit losses105 
Write offs charged against the allowance(232)
Recoveries of amounts previously written off78 
Balance, March 31, 2021$210,560 $6,082 
(In thousands)Premiums Receivable, Net Allowance for Expected Credit Losses
Balance, July 1, 2020$234,840
 $6,627
Provision for expected credit losses  123
Write offs charged against the allowance  (404)
Recoveries of amounts previously written off  270
Balance, September 30, 2020$237,894
 $6,616
(In thousands)Premiums Receivable, Net Allowance for Expected Credit Losses
Balance, December 31, 2019$249,540
 $1,590
Cumulative-effect adjustment on January 1, 2020, before tax - ASU 2016-13 adoption  5,160
Provision for expected credit losses  616
Write offs charged against the allowance  (1,078)
Recoveries of amounts previously written off  328
Balance, September 30, 2020$237,894
 $6,616

(In thousands)Premiums Receivable, NetAllowance for Expected Credit Losses
Balance, December 31, 2019$249,540 $1,590 
Cumulative-effect adjustment, before tax*5,160 
Provision for expected credit losses88 
Write offs charged against the allowance(689)
Recoveries of amounts previously written off48 
Balance, March 31, 2020$266,822 $6,197 
*Due to the adoption of ASU 2016-13, ProAssurance recorded a cumulative-effect adjustment to beginning retained earnings as of January 1, 2020 to increase its consolidated allowance for expected credit losses related to its premiums receivable. See Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K.
ProAssurance’s expected credit losses associated with its reinsurance receivables (related to both paid and unpaid losses) were nominal in amount as of September 30,March 31, 2021 and December 31, 2020. ProAssurance has other financial assets and off-balance-sheet commitments that are exposed to credit losses; however, expected credit losses associated with these assets and commitments were nominal in amount as of September 30, 2020.

15
Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

Investments
Impairments
ProAssurance evaluates its available-for-sale investment securities, which at September 30, 2020March 31, 2021 and December 31, 2019 consisted entirely of fixed maturity securities, on at least a quarterly basis for the purpose of determining whether declines in fair value below recorded cost basis represent a credit loss. The Company considers a credit loss to have occurred:
if there is intent to sell the security;
if it is more likely than not that the security will be required to be sold before full recovery of its amortized cost basis; or
if the entire amortized basis of the security is not expected to be recovered.
The assessment of whether the amortized cost basis of a security is expected to be recovered requires the Company to make assumptions regarding various matters affecting future cash flows. The choice of assumptions is subjective and requires the use of judgment. Actual credit losses experienced in future periods may differ from the Company’s estimates of those credit losses. Methodologies used to estimate the present value of expected cash flows are:
The estimate of expected cash flows is determined by projecting a recovery value and a recovery time frame and assessing whether further principal and interest will be received. ProAssurance considers various factors in projecting recovery values and recovery time frames, including the following:
third-party research and credit rating reports;
the current credit standing of the issuer, including credit rating downgrades, whether before or after the balance sheet date;
the extent to which the decline in fair value is attributable to credit risk specifically associated with the security or its issuer;
internal assessments and the assessments of external portfolio managers regarding specific circumstances surrounding an investment, which indicate the investment is more or less likely to recover its amortized cost than other investments with a similar structure;
for asset-backed securities, the origination date of the underlying loans, the remaining average life, the probability that credit performance of the underlying loans will deteriorate in the future and ProAssurance's assessment of the quality of the collateral underlying the loan;
failure of the issuer of the security to make scheduled interest or principal payments;
any changes to the rating of the security by a rating agency;
recoveries or additional declines in fair value subsequent to the balance sheet date;
adverse legal or regulatory events;
significant deterioration in the market environment that may affect the value of collateral (e.g. decline in real estate prices);
significant deterioration in economic conditions; and
disruption in the business model resulting from changes in technology or new entrants to the industry.
If deemed appropriate and necessary, a discounted cash flow analysis is performed to confirm whether a credit loss exists and, if so, the amount of the credit loss. ProAssurance uses the single best estimate approach for available-for-sale debt securities and considers all reasonably available data points, including industry analyses, credit ratings, expected defaults and the remaining payment terms of the debt security. For fixed rate available-for-sale debt securities, cash flows are discounted at the security's effective interest rate implicit in the security at the date of acquisition. If the available-for-sale debt security’s contractual interest rate varies based on subsequent changes in an independent factor, such as an index or rate, for example, the prime rate, the LIBOR, or the U.S. Treasury bill weekly average, that security’s effective interest rate is calculated based on the factor as it changes over the life of the security.
If ProAssurance intends to sell a debt security or believes it will more likely than not be required to sell a debt security before the amortized cost basis is recovered, any existing allowance will be written off against the security's amortized cost basis, with any remaining difference between the debt security's amortized cost basis and fair value recognized as an impairment loss in earnings.
Exclusive of securities where there is an intent to sell or where it is not more likely than not that the security will be required to be sold before recovery of its amortized cost basis, impairment for debt securities is separated into a credit component and a non-credit component. The credit component of an impairment is the difference between the security’s amortized cost basis and the present value of its expected future cash flows, while the non-credit component is the remaining difference between the security’s fair value and the present value of expected future cash flows. An allowance for expected credit losses will be recorded for the expected credit losses through income and the non-credit component is recognized in OCI.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

The amount of impairment recognized is limited to the excess of the amortized cost over the fair value of the available-for-sale debt security.
Goodwill/Intangibles
Intangible Assets
Intangible assets with definite lives are amortized over the estimated useful life of the asset. Amortizable intangible assets primarily consist of policyholder relationships, renewal rights and trade names. Intangible assets with an indefinite life, primarily state licenses, are not amortized. Indefinite lived intangible assets are evaluated for impairment on an annual basis or upon the occurrence of certain triggering events or substantive changes in circumstances that indicate the intangible asset may be impaired. Amortizable intangible assets and other long-lived assets are tested for impairment at the asset group level upon the occurrence of certain triggering events or substantive changes in circumstances that indicate the carrying amount of the asset group may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset group are less than the carrying amounts of the related asset group. Impairment losses are measured as the amount by which the carrying amount of the asset groups exceed their fair values. The Company's asset groups generally correspond to the same level at which goodwill is tested for impairment.
Goodwill
Goodwill is recognized in conjunction with business acquisitions as the excess of the purchase consideration for the business acquisition over the fair value of identifiable assets acquired and liabilities assumed. The fair value of identifiable assets and liabilities, and thus goodwill, is subject to redetermination within a measurement period of up to one year following completion of a business acquisition.
Goodwill is tested for impairment annually or more frequently if circumstances indicate an impairment may have occurred. The date of the Company's annual goodwill impairment testing is October 1. For the Company's last annual impairment test at October 1, 2019, the Company performed qualitative assessments that supported a conclusion that the fair value of all of the reporting units with goodwill exceeded their carrying value.
Impairment of goodwill is tested at the reporting unit level, which is consistent with the Company's reportable segments identified in Note 13. Of the 5 reporting units, 3 have goodwill - Specialty P&C, Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance.
Interim Impairment Assessments
As disclosed in the Company's June 30, 2020 report on Form 10-Q, COVID-19 has caused significant market volatility impacting the Company's actual and projected results along with a decline in its stock price. These impacts have persisted into the third quarter; and as a result, management performed new quantitative assessments of goodwill on its Specialty P&C and Workers' Compensation Insurance reporting units using updated marketplace data. The updated data, which is significantly influenced by the Company's continued depressed stock price relative to both its own book value and the comparable stock prices of its peers, impacted a number of key variables in the Company's analysis including the determination of a higher discount rate and lower valuation multiples. In addition, new guidance given by the Federal Reserve during the current quarter regarding the expectation of a prolonged low interest rate environment impacted the Company's analysis.
For each of the interim impairment assessments in the second and third quarters of 2020, management estimated the fair value of the reporting units using both an income approach and a market approach using marketplace data that was current at the time of each respective analysis. The estimate of fair value derived from the income approach was based on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital determined separately for each reporting unit. The estimate of fair value derived from the market approach was based on price to book multiple data. The determination of fair value involved the use of significant estimates and assumptions, including revenue growth rates, operating margins, capital requirements, tax rates, terminal growth rates, discount rates, comparable public companies and synergistic benefits available to market participants. In addition, management made certain judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine the carrying amount of each reporting unit.
This analysis during the third quarter of 2020 indicated an impairment of the goodwill associated with the Company's Specialty P&C reporting unit and accordingly the Company recorded a $161.1 million charge to goodwill in the current quarter.
Management also performed impairment tests of certain of its definite and indefinite lived intangible assets for which a triggering event was deemed to have occurred. Based upon these impairment tests, no impairment of the Company's definite or indefinite lived intangible assets was identified at September 30, 2020.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

Given the evolving, uncertain nature of the COVID-19 pandemic, the estimates and assumptions used by management in these impairment tests have inherent uncertainties, and different assumptions could lead to materially different results including impairment charges in the future. Management expects to continue to monitor developments and perform updated analyses as necessary.
See Note 5 for additional information about the Company's goodwill.
Accounting Changes Adopted
Improvements to Financial InstrumentsClarifying the Interactions between Investments - Credit LossesEquity Securities, Investments - Equity Method and Joint Ventures, and Derivatives and Hedging (ASU 2016-13)
Effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, the FASB issued guidance that replaces the incurred loss impairment methodology, which delays recognition of credit losses until a probable loss has been incurred, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Included in the scope of this guidance are the Company's available-for-sale fixed maturity securities and its financial assets held at amortized cost. Under the new guidance, credit losses are required to be recorded through an allowance for expected credit losses account and the income statement will reflect the initial recognition of lifetime expected credit losses for any newly recognized financial assets as well as increases or decreases of expected credit losses that have taken place during the period. Credit losses on available-for-sale fixed maturity securities are required to be presented as an allowance, rather than as a write-down of the asset, limited to the amount by which the fair value is below amortized cost. ProAssurance adopted this guidance beginning January 1, 2020 using a modified retrospective application for the portion of the new guidance that relates to its premiums and reinsurance receivables and a prospective application for the portion of the new guidance that relates to its available-for-sale fixed maturity securities. ProAssurance recorded a cumulative-effect adjustment of $4.1 million, net of related tax impacts, to beginning retained earnings as of January 1, 2020 to increase its consolidated allowance for expected credit losses related to its premiums receivable. ProAssurance determined that estimated expected credit losses associated with the Company's other financial assets held at amortized cost included in the scope of this new guidance was nominal as of January 1, 2020. Adoption of this guidance had no material effect on ProAssurance's results of operations, financial position or cash flows.
Simplifying the Test for Goodwill Impairment (ASU 2017-04)
Effective for the fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, the FASB issued guidance that simplifies the requirements to test goodwill for impairment for business entities that have goodwill reported in their financial statements. The guidance eliminates the second step of the impairment test which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount or the reporting unit, with the impairment loss not to exceed the carrying amount of goodwill. This new guidance is expected to reduce the complexity and cost of future tests of goodwill for impairment. In addition, the guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. ProAssurance adopted the guidance beginning January 1, 2020.
Adoption of this guidance did not have a significant impact on the Company's interim quantitative goodwill impairment tests for the Workers' Compensation Insurance or Specialty P&C reporting units performed during the second quarter of 2020 or on the interim quantitative goodwill impairment tests for the Workers' Compensation Insurance or Segregated Portfolio Cell Reinsurance reporting units performed during the third quarter of 2020 as the fair value of each of these reporting units exceeded their carrying amounts (see previous discussion of these interim impairment assessments). Adoption of this guidance simplified the Company's interim quantitative goodwill impairment test for the Specialty P&C reporting unit during the third quarter of 2020 as the Company measured the impairment loss on this reporting unit by the amount that the carrying amount of the reporting unit exceeded its fair value, with the impairment charge not to exceed the carrying amount of goodwill.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13)
Effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, the FASB issued guidance that eliminates, modifies and adds certain disclosure requirements related to fair value measurements. The new guidance eliminates the requirements to disclose the transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels of the fair value hierarchy and the valuation process for Level 3 fair value measurements while it modifies existing disclosure requirements related to measurement uncertainty and the requirement to disclose the timing of liquidation of an investee's assets for investments in certain entities that calculate NAV. The new guidance also adds requirements to disclose changes in unrealized gains and losses included in OCI for recurring Level 3 fair value measurements as well as the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. An entity is permitted to early adopt any eliminated or modified disclosure requirements and delay adoption of the additional disclosure requirements until the guidance is effective. During the third quarter of 2018, ProAssurance elected to early adopt the provisions that eliminate and modify certain disclosure requirements within Note 2 on a retrospective basis, and adopted the additional disclosure requirements beginning January 1, 2020. Adoption of this guidance had no material effect on ProAssurance’s results of operations, financial position or cash flows as it affected disclosures only.
Intangibles - Goodwill and Other-Internal-Use Software (ASU 2018-15)
Effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, the FASB amended the new standard regarding accounting for implementation costs in cloud computing arrangements. The amended guidance substantially aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ProAssurance adopted the guidance beginning January 1, 2020, and adoption had no material effect on ProAssurance’s results of operations, financial position or cash flows.
Targeted Improvements to Related Party Guidance for VIEs (ASU 2018-17)
Effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, the FASB amended guidance which improves the consistency of the application of the VIE guidance for common control arrangements. The amended guidance requires an entity to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety when determining whether a decision-making fee is a variable interest. ProAssurance adopted the guidance beginning January 1, 2020. ProAssurance does not have any material indirect interests held through related parties under common control; therefore, adoption had no material effect on ProAssurance’s results of operations, financial position or cash flows.
Collaborative Arrangements (ASU 2018-18)
Effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, the FASB issued new guidance which clarifies how to assess whether certain transactions between participants in a collaborative arrangement should be accounted for under the revenue from contracts with customers accounting standard when the counterpart is a customer. In addition, the guidance precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. ProAssurance adopted the guidance beginning January 1, 2020, and adoption had no material effect on ProAssurance’s results of operations, financial position or cash flows.
Reference Rate Reform (ASU 2020-04)
The FASB issued guidance intended to assist stakeholders during the market-wide reference rate transition period and is effective for a limited period between March 12, 2020 and December 31, 2022. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate that is expected to be discontinued because of reference rate reform. ProAssurance has exposure to LIBOR-based financial instruments through its variable rate Mortgage Loans and Revolving Credit Agreement; however, these agreements include provisions for an alternative benchmark rate if LIBOR ceases to exist, which do not materially change the liability exposure. Additionally, ProAssurance has exposure to LIBOR in its available-for-sale fixed maturities portfolio which represented approximately 6% of total investments, or $188 million, as of September 30, 2020; 31% of these investments with exposure to LIBOR were issued during 2020 or 2019 and include provisions for an alternative benchmark rate. Optional expedients for contract modifications include a prospective adjustment that does not require contract remeasurement or reassessment of a previous accounting determination; therefore, the modified contract is accounted for as a continuation of the existing contract. ProAssurance adopted the guidance beginning March 12, 2020, and adoption had no material effect on ProAssurance's results of operations, financial position or cash flows.
Simplifying the Accounting for Income Taxes (ASU 2019-12)

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

2020-01)
Effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, the FASB issued newamended guidance which is intended to simplify various aspects related tothat clarifies the accounting for income taxes. In addition, it removes certain exceptions to the general principles in the income tax guidance in the codificationtransition into and also clarifies and amends existing guidance to improve consistent application. ProAssurance elected to early adopt this guidance using a prospective application during the second quarter of 2020. The most impactful provisionout of the newequity method and measuring certain purchased options and forward contracts to acquire investments. ProAssurance adopted the guidance beginning January 1, 2021, and adoption had no material effect on the Company is the removalProAssurance's results of the limitation on the tax benefit recognized on pre-tax losses during interim periods in which the year-to-date loss exceeds the expected loss for the fiscal year.operations, financial position or cash flows.
Accounting Changes Not Yet Adopted
Clarifying the Interactions between Investments - Equity Securities, Investments - Equity Method and Joint Ventures, and Derivatives and Hedging (ASU 2020-01)
Effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, the FASB amended guidance that clarifies the accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. ProAssurance plans to adopt the guidance beginning January 1, 2021, and adoption is not expected toaware of any accounting changes not yet adopted as of March 31, 2021 that could have a material effectimpact on ProAssurance'sits results of operations, financial position or cash flows.


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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021
Credit Losses
ProAssurance's premiums receivable and reinsurance receivables are exposed to credit losses but to-date have not experienced any significant amount of credit losses. See Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K for further information on how the Company estimates and measures expected credit losses on its premiums receivable and reinsurance receivables. ProAssurance's available-for-sale fixed maturity investments are also exposed to credit losses. See Note 3 for information on ProAssurance's allowance for expected credit losses on it's available-for-sale fixed maturities.
ProAssurance’s premiums receivable on its Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 is reported net of the related allowance for expected credit losses of $6.1 million in each period. The following tables present a roll forward of the allowance for expected credit losses related to the Company's premiums receivable for the three months ended March 31, 2021 and 2020.
(In thousands)Premiums Receivable, NetAllowance for Expected Credit Losses
Balance, December 31, 2020$201,395 $6,131 
Provision for expected credit losses105 
Write offs charged against the allowance(232)
Recoveries of amounts previously written off78 
Balance, March 31, 2021$210,560 $6,082 
(In thousands)Premiums Receivable, NetAllowance for Expected Credit Losses
Balance, December 31, 2019$249,540 $1,590 
Cumulative-effect adjustment, before tax*5,160 
Provision for expected credit losses88 
Write offs charged against the allowance(689)
Recoveries of amounts previously written off48 
Balance, March 31, 2020$266,822 $6,197 
*Due to the adoption of ASU 2016-13, ProAssurance recorded a cumulative-effect adjustment to beginning retained earnings as of January 1, 2020 to increase its consolidated allowance for expected credit losses related to its premiums receivable. See Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K.
ProAssurance’s expected credit losses associated with its reinsurance receivables (related to both paid and unpaid losses) were nominal in amount as of March 31, 2021 and December 31, 2020. ProAssurance has other financial assets and off-balance-sheet commitments that are exposed to credit losses; however, expected credit losses associated with these assets and commitments were nominal in amount as of March 31, 2021 and December 31, 2020.
Other Liabilities
Other liabilities consisted of the following:

(In thousands)March 31, 2021December 31, 2020
SPC dividends payable$69,732 $68,865 
Unpaid shareholder dividends2,699 2,694 
All other132,666 110,480 
Total other liabilities$205,097 $182,039 
SPC dividends payable represents the undistributed equity contractually payable to the external cell participants of SPCs operated by ProAssurance's Cayman Islands subsidiaries, Inova Re and Eastern Re.
Unpaid shareholder dividends represent common stock dividends declared by ProAssurance's Board that had not yet been paid as of March 31, 2021.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2021
2. Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level hierarchy has been established for valuing assets and liabilities based on how transparent (observable) the inputs are that are used to determine fair value, with the inputs considered most observable categorized as Level 1 and those that are the least observable categorized as Level 3. Hierarchy levels are defined as follows:
Level 1:quoted (unadjusted) market prices in active markets for identical assets and liabilities. For ProAssurance, Level 1 inputs are generally quotes for debt or equity securities actively traded in exchange or over-the-counter markets.
Level 2:market data obtained from sources independent of the reporting entity (observable inputs). For ProAssurance, Level 2 inputs generally include quoted prices in markets that are not active, quoted prices for similar assets or liabilities, and results from pricing models that use observable inputs such as interest rates and yield curves that are generally available at commonly quoted intervals.
Level 3:the reporting entity’s own assumptions about market participant assumptions based on the best information available in the circumstances (non-observable inputs). For ProAssurance, Level 3 inputs are used in situations where little or no Level 1 or 2 inputs are available or are inappropriate given the particular circumstances. Level 3 inputs include results from pricing models for which some or all of the inputs are not observable, discounted cash flow methodologies, single non-binding broker quotes and adjustments to externally quoted prices that are based on management judgment or estimation.
Fair values of assets measured at fair value on a recurring basis as of September 30, 2020March 31, 2021 and December 31, 20192020 are shown in the following tables. Where applicable, the tables also indicate the fair value hierarchy of the valuation techniques utilized to determine those fair values. For some assets, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When this is the case, the asset is categorized based on the level of the most significant input to the fair value measurement. Assessments of the significance of a particular input to the fair value measurement require judgment and consideration of factors specific to the assets being valued.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

March 31, 2021
Fair Value Measurements UsingTotal
(In thousands)Level 1Level 2Level 3Fair Value
Assets:
Fixed maturities, available-for-sale
U.S. Treasury obligations$0 $102,877 $0 $102,877 
U.S. Government-sponsored enterprise obligations0 11,944 0 11,944 
State and municipal bonds0 322,465 0 322,465 
Corporate debt, multiple observable inputs0 1,421,097 0 1,421,097 
Corporate debt, limited observable inputs0 0 7,769 7,769 
Residential mortgage-backed securities0 270,059 1,489 271,548 
Agency commercial mortgage-backed securities0 13,718 0 13,718 
Other commercial mortgage-backed securities0 121,319 0 121,319 
Other asset-backed securities0 282,712 7,824 290,536 
Fixed maturities, trading0 45,151 0 45,151 
Equity investments
Bond funds60,264 0 0 60,264 
All other17,273 0 0 17,273 
Short-term investments259,075 21,918 0 280,993 
Other investments29 67,070 2,152 69,251 
Other assets0 836 0 836 
Total assets categorized within the fair value hierarchy$336,641 $2,681,166 $19,234 3,037,041 
Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:
Investment in unconsolidated subsidiaries226,898 
Total assets at fair value$3,263,939 
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 September 30, 2020
 Fair Value Measurements Using Total
(In thousands)Level 1 Level 2 Level 3 Fair Value
Assets:       
Fixed maturities, available-for-sale       
U.S. Treasury obligations$0
 $117,364
 $0
 $117,364
U.S. Government-sponsored enterprise obligations0
 11,055
 0
 11,055
State and municipal bonds0
 319,092
 0
 319,092
Corporate debt, multiple observable inputs0
 1,303,186
 0
 1,303,186
Corporate debt, limited observable inputs0
 0
 3,995
 3,995
Residential mortgage-backed securities0
 243,198
 4,120
 247,318
Agency commercial mortgage-backed securities0
 14,171
 0
 14,171
Other commercial mortgage-backed securities0
 99,076
 0
 99,076
Other asset-backed securities0
 261,994
 8,834
 270,828
Fixed maturities, trading0
 53,081
 0
 53,081
Equity investments      
Financial10,622
 0
 0
 10,622
Utilities/Energy436
 0
 0
 436
Consumer oriented1,144
 0
 0
 1,144
Industrial1,707
 0
 0
 1,707
Bond funds72,044
 0
 0
 72,044
All other19,285
 0
 0
 19,285
Short-term investments351,206
 26,333
 0
 377,539
Other investments1,493
 36,221
 0
 37,714
Other assets0
 341
 0
 341
Total assets categorized within the fair value hierarchy$457,937
 $2,485,112
 $16,949
 2,959,998
Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:       
Equity investments      24,147
Investment in unconsolidated subsidiaries      233,142
Total assets at fair value      $3,217,287

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

 December 31, 2019
 Fair Value Measurements Using Total
(In thousands)Level 1 Level 2 Level 3 Fair Value
Assets:       
Fixed maturities, available-for-sale       
U.S. Treasury obligations$0
 $110,467
 $0
 $110,467
U.S. Government-sponsored enterprise obligations0
 17,340
 0
 17,340
State and municipal bonds0
 296,093
 0
 296,093
Corporate debt, multiple observable inputs0
 1,335,285
 0
 1,335,285
Corporate debt, limited observable inputs0
 0
 5,079
 5,079
Residential mortgage-backed securities0
 208,408
 0
 208,408
Agency commercial mortgage-backed securities0
 8,221
 0
 8,221
Other commercial mortgage-backed securities0
 71,868
 0
 71,868
Other asset-backed securities0
 233,032
 2,992
 236,024
Fixed maturities, trading0
 47,284
 0
 47,284
Equity investments      
Financial40,294
 0
 0
 40,294
Utilities/Energy21,195
 0
 0
 21,195
Consumer oriented29,288
 0
 0
 29,288
Industrial26,440
 0
 0
 26,440
Bond funds58,346
 0
 0
 58,346
All other52,512
 0
 0
 52,512
Short-term investments317,313
 22,594
 0
 339,907
Other investments219
 32,713
 3,086
 36,018
Other assets0
 760
 0
 760
Total assets categorized within the fair value hierarchy$545,607

$2,384,065

$11,157

2,940,829
Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:       
Equity investments      22,477
Investment in unconsolidated subsidiaries      270,524
Total assets at fair value      $3,233,830

December 31, 2020
Fair Value Measurements UsingTotal
(In thousands)Level 1Level 2Level 3Fair Value
Assets:
Fixed maturities, available-for-sale
U.S. Treasury obligations$0 $107,059 $0 $107,059 
U.S. Government-sponsored enterprise obligations0 12,261 0 12,261 
State and municipal bonds0 332,920 0 332,920 
Corporate debt, multiple observable inputs0 1,326,077 0 1,326,077 
Corporate debt, limited observable inputs0 0 3,265 3,265 
Residential mortgage-backed securities0 274,509 2,032 276,541 
Agency commercial mortgage-backed securities0 13,310 0 13,310 
Other commercial mortgage-backed securities0 113,092 0 113,092 
Other asset-backed securities0 266,345 6,661 273,006 
Fixed maturities, trading0 48,456 0 48,456 
Equity investments
Financial13,810 0 0 13,810 
Utilities/Energy564 0 0 564 
Consumer oriented1,262 0 0 1,262 
Industrial2,240 0 0 2,240 
Bond funds69,475 0 0 69,475 
All other20,202 0 0 20,202 
Short-term investments307,695 30,118 0 337,813 
Other investments1,509 42,607 0 44,116 
Other assets0 329 0 329 
Total assets categorized within the fair value hierarchy$416,757 $2,567,083 $11,958 2,995,798 
Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:
Equity investments12,548 
Investment in unconsolidated subsidiaries233,711 
Total assets at fair value$3,242,057 
The fair values for securities included in the Level 2 category, with the few exceptions described below, were developed by one of several third party, nationally recognized pricing services, including services that price only certain types of securities. Each service uses complex methodologies to determine values for securities and subject the values they develop to quality control reviews. Management selected a primary source for each type of security in the portfolio and reviewed the values provided for reasonableness by comparing data to alternate pricing services and to available market and trade data. Values that appeared inconsistent were further reviewed for appropriateness. Any value that did not appear reasonable was discussed with the service that provided the value and adjusted, if necessary. There were no material changes to the values supplied by the pricing services as of September 30, 2020March 31, 2021 and December 31, 2019.

2020.
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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

Level 2 Valuations
Below is a summary description of the valuation methodologies primarily used by the pricing services for securities in the Level 2 category, by security type:
U.S. Treasury obligations were valued based on quoted prices for identical assets, or, in markets that are not active, quotes for similar assets, taking into consideration adjustments for variations in contractual cash flows and yields to maturity.
U.S. Government-sponsored enterprise obligations were valued using pricing models that consider current and historical market data, normal trading conventions, credit ratings and the particular structure and characteristics of the security being valued, such as yield to maturity, redemption options, and contractual cash flows. Adjustments to model inputs or model results were included in the valuation process when necessary to reflect recent regulatory, government or corporate actions or significant economic, industry or geographic events affecting the security’s fair value.
State and municipal bonds were valued using a series of matrices that considered credit ratings, the structure of the security, the sector in which the security falls, yields and contractual cash flows. Valuations were further adjusted, when necessary, to reflect the expected effect on fair value of recent significant economic or geographic events or ratings changes.
Corporate debt, multiple observable inputs consisted primarily of corporate bonds, but also included a small number of bank loans. The methodology used to value Level 2 corporate bonds was the same as the methodology previously described for U.S. Government-sponsored enterprise obligations. Bank loans were valued based on an average of broker quotes for the loans in question, if available. If quotes were not available, the loans were valued based on quoted prices for comparable loans or, if the loan was newly issued, by comparison to similar seasoned issues. Broker quotes were compared to actual trade prices to permit assessment of the reliability of the quotes; unreliable quotes were not considered in quoted averages.
Residential and commercial mortgage-backed securities were valued using a pricing matrix which considers the issuer type, coupon rate and longest cash flows outstanding. The matrix used was based on the most recently available market information. Agency and non-agency collateralized mortgage obligations were both valued using models that consider the structure of the security, current and historical information regarding prepayment speeds, ratings and ratings updates, and current and historical interest rate and interest rate spread data.
Other asset-backed securities were valued using models that consider the structure of the security, monthly payment information, current and historical information regarding prepayment speeds, ratings and ratings updates, and current and historical interest rate and interest rate spread data. Spreads and prepayment speeds consider collateral type.
Fixed maturities, trading, are held by the Lloyd's Syndicates segment and include U.S. Treasury obligations, corporate debt with multiple observable inputs and residential mortgage-backedother asset-backed securities. These securities were valued using the respective valuation methodologies discussed above for each security type.
Short-term investments were securities maturing within one year, carried at fair value which approximated the cost of the securities due to their short-term nature.
 Other investments consisted primarily of convertible bonds valued using a pricing model that incorporated selected dealer quotes as well as current market data regarding equity prices and risk free rates. If dealer quotes were unavailable for the security being valued, quotes for securities with similar terms and credit status were used in the pricing model. Dealer quotes selected for use were those considered most accurate based on parameters such as underwriter status and historical reliability.
Other assets consisted of an interest rate cap derivative instrument, valued using a model which considers the volatilities from other instruments with similar maturities, strike prices, durations and forward yield curves. Under the terms of the interest rate cap agreement, ProAssurance paid a premium of $2 million for the right to receive cash payments based upon a notional amount of $35 million if and when the three-month LIBOR rises above 2.35%. The Company's variable-rate Mortgage Loans bear an interest rate of three-month LIBOR plus 1.325%. For additional information regarding the interest rate cap agreement, see Note 12 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2019 report on Form 10-K.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

Level 3 Valuations
Below is a summary description of the valuation methodologies used as well as quantitative information regarding securities in the Level 3 category, by security type:
Level 3 Valuation Methodologies
Corporate debt, limited observable inputs consisted of corporate bonds valued using dealer quotes for similar securities or discounted cash flow models using yields currently available for similar securities. Similar securities are defined as securities of comparable credit quality that have like terms and payment features. Assessments of credit quality were based on NRSRO ratings, if available, or were determined by management if not available. At September 30,March 31, 2021, 61% of the securities were rated and the average rating was BB+. At December 31, 2020, 100% of the securities were rated and the average rating was BBBB+. At December 31, 2019, 66% of the securities were rated and the average rating was BBB-.
Residential mortgage-backed and other asset-backed securities consisted of securitizations of receivables valued using dealer quotes for similar securities or discounted cash flow models using yields currently available for similar securities. Similar securities are defined as securities of comparable credit quality that have like terms and payment features. Assessments of credit quality were based on NRSRO ratings, if available, or were subjectively determined by management if not available. At September 30, 2020, 88%March 31, 2021, 83% of the securities were rated and the average rating was AA+. At December 31, 2019, 100%2020, 51% of the securities were rated and the average rating was AA.AA-.
Other investments consisted of convertible securities for which limited observable inputs were available at DecemberMarch 31, 2019.2021. The securities were valued internally based on expected cash flows, including the expected final recovery, discounted at a yield that considered the lack of liquidity and the financial status of the issuer.
Quantitative Information Regarding Level 3 Valuations
  Fair Value at      
($ in thousands) September 30, 2020 December 31, 2019 Valuation Technique Unobservable Input Range
(Weighted Average)
Assets:          
Corporate debt, limited observable inputs $3,995 $5,079 Market Comparable
Securities		 Comparability Adjustment 0% - 5% (2.5%)
      Discounted Cash Flows Comparability Adjustment 0% - 5% (2.5%)
Residential mortgage-backed securities $4,120 0 Market Comparable
Securities		 Comparability Adjustment 0% - 5% (2.5%)
      Discounted Cash Flows Comparability Adjustment 0% - 5% (2.5%)
Other asset-backed securities $8,834 $2,992 Market Comparable
Securities		 Comparability Adjustment 0% - 5% (2.5%)
      Discounted Cash Flows Comparability Adjustment 0% - 5% (2.5%)
Other investments $0 $3,086 Discounted Cash Flows Comparability Adjustment 0% - 10% (5%)

Fair Value at
($ in thousands)March 31, 2021December 31, 2020Valuation TechniqueUnobservable InputRange
(Weighted Average)
Assets:
Corporate debt, limited observable inputs$7,769$3,265Market Comparable
Securities		Comparability Adjustment0% - 5% (2.5%)
Discounted Cash FlowsComparability Adjustment0% - 5% (2.5%)
Residential mortgage-backed securities$1,489$2,032Market Comparable
Securities		Comparability Adjustment0% - 5% (2.5%)
Discounted Cash FlowsComparability Adjustment0% - 5% (2.5%)
Other asset-backed securities$7,824$6,661Market Comparable
Securities		Comparability Adjustment0% - 5% (2.5%)
Discounted Cash FlowsComparability Adjustment0% - 5% (2.5%)
Other investments$2,152$0Discounted Cash FlowsComparability Adjustment0% - 10% (5%)
The significant unobservable inputs used in the fair value measurement of the above listed securities were the valuations of comparable securities with similar issuers, credit quality and maturity. Changes in the availability of comparable securities could result in changes in the fair value measurements.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

Fair Value Measurements - Level 3 Assets
The following tables (the Level 3 Tables) present summary information regarding changes in the fair value of assets measured at fair value using Level 3 inputs.
 March 31, 2021
 Level 3 Fair Value Measurements – Assets
(In thousands)Corporate DebtAsset-backed SecuritiesOther InvestmentsTotal
Balance December 31, 2020$3,265 $8,693 $0 $11,958 
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income1 (2)0 (1)
Net realized investment gains (losses)0 (11)0 (11)
Included in other comprehensive income20 (179)0 (159)
Purchases4,875 7,357 0 12,232 
Sales(17)(304)0 (321)
Transfers in858 0 2,152 3,010 
Transfers out(1,233)(6,241)0 (7,474)
Balance March 31, 2021$7,769 $9,313 $2,152 $19,234 
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end$0 $0 $0 $0 
September 30, 2020 March 31, 2020
Level 3 Fair Value Measurements – Assets Level 3 Fair Value Measurements – Assets
(In thousands)Corporate Debt Asset-backed Securities Other Investments Total(In thousands)Corporate DebtAsset-backed SecuritiesOther InvestmentsTotal
Balance June 30, 2020$3,117
 $5,978
 $1,568
 $10,663
Balance December 31, 2019Balance December 31, 2019$5,079 $2,992 $3,086 $11,157 
Total gains (losses) realized and unrealized:       Total gains (losses) realized and unrealized:
Included in earnings, as a part of:       Included in earnings, as a part of:
Net realized investment gains (losses)0
 (2) 143
 141
Net realized investment gains (losses)0 0 (222)(222)
Included in other comprehensive income(6) (58) 0
 (64)Included in other comprehensive income(83)(122)0 (205)
Purchases900
 8,513
 0
 9,413
Purchases0 3,422 0 3,422 
Sales(16) (99) 0
 (115)Sales(1,707)0 0 (1,707)
Transfers inTransfers in945 605 0 1,550 
Transfers out0
 (1,378) (1,711) (3,089)Transfers out(794)0 (1,526)(2,320)
Balance September 30, 2020$3,995
 $12,954
 $0
 $16,949
Balance March 31, 2020Balance March 31, 2020$3,440 $6,897 $1,338 $11,675 
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end$0
 $0
 $143
 $143
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end$0 $0 $(222)$(222)
 September 30, 2020
 Level 3 Fair Value Measurements – Assets
(In thousands)Corporate Debt Asset-backed Securities Other Investments Total
Balance December 31, 2019$5,079
 $2,992
 $3,086
 $11,157
Total gains (losses) realized and unrealized:       
Included in earnings, as a part of:       
Net investment income0
 (10) 0
 (10)
Net realized investment gains (losses)0
 (2) 151
 149
Included in other comprehensive income38
 23
 0
 61
Purchases900
 13,341
 0
 14,241
Sales(2,173) (888) 0
 (3,061)
Transfers in945
 605
 0
 1,550
Transfers out(794) (3,107) (3,237) (7,138)
Balance September 30, 2020$3,995
 $12,954
 $0
 $16,949
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end$0
 $0
 $151
 $151


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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

 September 30, 2019
 Level 3 Fair Value Measurements – Assets
(In thousands)Corporate Debt Asset-backed Securities Other Investments Total
Balance June 30, 2019$2,304
 $4,163
 $624
 $7,091
Total gains (losses) realized and unrealized:       
Included in earnings, as a part of:       
Net investment income0
 (23) 0
 (23)
Net realized investment gains (losses)0
 0
 2
 2
Included in other comprehensive income74
 14
 0
 88
Purchases1,545
 0
 1,296
 2,841
Sales(1,566) (24) 0
 (1,590)
Transfers in1,750
 1,016
 0
 2,766
Transfers out0
 0
 (405) (405)
Balance September 30, 2019$4,107
 $5,146
 $1,517
 $10,770
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end$0
 $0
 $2
 $2

 September 30, 2019
 Level 3 Fair Value Measurements – Assets
(In thousands)Corporate Debt Asset-backed Securities Other Investments Total
Balance December 31, 2018$4,322
 $3,850
 $3
 $8,175
Total gains (losses) realized and unrealized:       
Included in earnings, as a part of:       
Net investment income2
 (163) 0
 (161)
Net realized investment gains (losses)0
 0
 35
 35
Included in other comprehensive income85
 224
 0
 309
Purchases2,850
 0
 1,466
 4,316
Sales(3,702) (30) 0
 (3,732)
Transfers in1,750
 2,216
 418
 4,384
Transfers out(1,200) (951) (405) (2,556)
Balance September 30, 2019$4,107
 $5,146
 $1,517
 $10,770
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end$0
 $0
 $35
 $35



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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

Transfers
Transfers shown in the preceding Level 3 tables were as of the end of the quarterperiod in which the transfer occurred. All transfers were to or from Level 2.
All transfers in and out of Level 3 during the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 related to securities held for which the level of market activity for identical or nearly identical securities varies from period to period. The securities were valued using multiple observable inputs when those inputs were available; otherwise the securities were valued using limited observable inputs.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2021
Fair Values Not Categorized
At September 30, 2020March 31, 2021 and December 31, 2019,2020, certain LPs/LLCs and investment funds measure fund assets at fair value on a recurring basis and provide a NAV for ProAssurance's interest. The carrying value of these interests is based on the NAV provided and was considered to approximate the fair value of the interests. For investment in unconsolidated subsidiaries, ProAssurance recognizes any changes in the NAV of its interests in equity in earnings (loss) of unconsolidated subsidiaries during the period of change. In accordance with GAAP, the fair value of these investments was not classified within the fair value hierarchy. The amount of ProAssurance's unfunded commitments related to these investments as of September 30, 2020March 31, 2021 and fair values of these investments as of September 30, 2020March 31, 2021 and December 31, 20192020 were as follows:
 Unfunded
Commitments		 Fair Value
(In thousands)September 30,
2020		 September 30,
2020		 December 31,
2019
Equity investments:     
Mortgage fund (1)
NaN $24,147
 $22,477
Investment in unconsolidated subsidiaries:     
Private debt funds (2)
$11,961 18,054
 19,011
Long equity fund (3)
NaN 0
 5,293
Long/short equity funds (4)
NaN 608
 30,542
Non-public equity funds (5)
$46,956 133,777
 120,343
Multi-strategy fund of funds (6)
NaN 2,092
 1,951
Credit funds (7)
$1,962 39,638
 42,415
Long/short commodities fund (8)
NaN 0
 14,519
Strategy focused funds (9)
$41,441 38,973
 36,450
   233,142
 270,524
Total investments carried at NAV  $257,289

$293,001
 Unfunded
Commitments		Fair Value
(In thousands)March 31,
2021		March 31,
2021		December 31,
2020
Equity investments:
Mortgage fund (1)
NaN$0 $12,548 
Investment in unconsolidated subsidiaries:
Private debt funds (2)
$11,30816,317 16,387 
Long/short equity funds (3)
NaN632 596 
Non-public equity funds (4)
$42,554137,648 138,357 
Credit funds (5)
$1,65326,943 34,848 
Strategy focused funds (6)
$36,92745,358 43,523 
226,898 233,711 
Total investments carried at NAV$226,898 $246,259 
Below is additional information regarding each of the investments listed in the table above as of SeptemberMarch 31, 2021.
(1)This investment fund was focused on the structured mortgage market. The fund primarily invested in U.S. Agency mortgage-backed securities. Redemptions are allowed at the end of any calendar quarter with a prior notice requirement of 65 days and are paid within 45 days at the end of the redemption dealing day.
(2)This investment is comprised of interests in 2 unrelated LP funds that are structured to provide interest distributions primarily through diversified portfolios of private debt instruments. NaN LP allows redemption by special consent, while the other does not permit redemption. Income and capital are to be periodically distributed at the discretion of the LPs over an anticipated time frame that spans from three to eight years.
(3)This investment holds primarily long and short North American equities and targets absolute returns using strategies designed to take advantage of market opportunities. Redemptions are permitted; however, redemptions above specified thresholds (lowest threshold is 90%) may be only partially payable until after a fund audit is completed and are then payable within 30 2020.days.
(1)
(4)This investment is comprised of interests in multiple unrelated LP funds, each structured to provide capital appreciation through diversified investments in private equity, which can include investments in buyout, venture capital, debt including senior, second lien and mezzanine, distressed debt, collateralized loan obligations and other private equity-oriented LPs. Two of the LPs allow redemption by terms set forth in the LP agreements; the others do not permit redemption. Income and capital are to be periodically distributed at the discretion of the LP over time frames that are anticipated to span up to ten years.
(5)This investment is comprised of 4 unrelated LP funds. Two funds seek to obtain superior risk-adjusted absolute returns through a diversified portfolio of debt securities, including bonds, loans and other asset-backed instruments. A third fund focuses on private middle market company mezzanine loans, while the remaining fund seeks event driven opportunities across the corporate credit spectrum. Two funds are allowed redemptions at any quarter-end with a prior notice requirement of 90 days; one fund permits redemption at any quarter-end with a prior notice requirement of 180 days and one fund does not allow redemptions. For the fund that does not allow redemptions, income and capital are to be periodically distributed at the discretion of the LP over time frames that are anticipated to span up to twelve years.
This investment fund is focused on the structured mortgage market. The fund will primarily invest in U.S. Agency mortgage-backed securities. Redemptions are allowed at the end of any calendar quarter with a prior notice requirement of 65 days and are paid within 45 days at the end of the redemption dealing day.
(2)
This investment is comprised of interests in 2 unrelated LP funds that are structured to provide interest distributions primarily through diversified portfolios of private debt instruments. NaN LP allows redemption by special consent, while the other does not permit redemption. Income and capital are to be periodically distributed at the discretion of the LPs over an anticipated time frame that spans from three to eight years.
(3)
This fund is a LP that holds long equities of public international companies and was fully redeemed during the second quarter of 2020.
(4)
This investment holds primarily long and short North American equities and target absolute returns using strategies designed to take advantage of market opportunities. Redemptions are permitted; however, redemptions above specified thresholds (lowest threshold is 90%) may be only partially payable until after a fund audit is completed and are then payable within 30 days.

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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

(5)
This investment is comprised of interests in multiple unrelated LP funds, each structured to provide capital appreciation through diversified investments in private equity, which can include investments in buyout, venture capital, debt including senior, second lien and mezzanine, distressed debt, collateralized loan obligations and other private equity-oriented LPs. Two of the LPs allow redemption by terms set forth in the LP agreements; the others do not permit redemption. Income and capital are to be periodically distributed at the discretion of the LP over time frames that are anticipated to span up to ten years.
(6)
This fund is a LLC structured to build and manage low volatility, multi-manager portfolios that have little or no correlation to the broader fixed income and equity security markets. Redemptions are not permitted but offers to repurchase units of the LLC may be extended periodically.
(7)
This investment is comprised of 4 unrelated LP funds. Two funds seek to obtain superior risk-adjusted absolute returns through a diversified portfolio of debt securities, including bonds, loans and other asset-backed instruments. A third fund focuses on private middle market company mezzanine loans, while the remaining fund seeks event driven opportunities across the corporate credit spectrum. Two funds are allowed redemptions at any quarter-end with a prior notice requirement of 90 days; one fund permits redemption at any quarter-end with a prior notice requirement of 180 days and one fund does not allow redemptions. For the fund that does not allow redemptions, income and capital are to be periodically distributed at the discretion of the LP over time frames that are anticipated to span up to twelve years.
(8)
This fund is a LLC invested across a broad range of commodities and focuses primarily on market neutral, relative value strategies, seeking to generate absolute returns with low correlation to broad commodity, equity and fixed income markets. This fund was fully redeemed during the second quarter of 2020.
(9) This investment is comprised of multiple unrelated LPs/LLCs funds. One fund is a LLC focused on investing in North American consumer products companies, comprised of equity and equity-related securities, as well as debt instruments. A second fund is focused on aircraft investments, along with components and assets related to aircrafts. For both funds, redemptions are not permitted. Another fund is a LP focused on North American energy infrastructure assets that allows redemption with consent of the General Partner. The remaining funds are real estate focused LPs, one of which allows for redemption with prior notice.
ProAssurance may not sell, transfer or assign its interest in any of the above LPs/LLCs without special consent from the LPs/LLCs.
Nonrecurring Fair Value Measurement
During the three months ended September 30, 2020, ProAssurance recognized a nonrecurring fair value measurement related to the goodwill in its Specialty P&C reporting unit with a carrying value of $161.1 million prior to the fair value measurement. This nonrecurring fair value measurement resulted in the goodwill being written down to its implied fair value of zero resulting in an impairment of the goodwill of $161.1 million. The inputs used in the fair value measurement were non-observable and, as such, were categorized as a Level 3 valuation. ProAssurance did not0t have any other assets or liabilities that were measured at fair value on a nonrecurring basis at September 30, 2020 orMarch 31, 2021or December 31, 2019.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

2020.
Financial Instruments - Methodologies Other Than Fair Value
The following table provides the estimated fair value of the Company's financial instruments that, in accordance with GAAP for the type of investment, are measured using a methodology other than fair value. Fair values provided primarily fall within the Level 3 fair value category.
 September 30, 2020 December 31, 2019
(In thousands)Carrying
Value		 Fair
Value		 Carrying
Value		 Fair
Value
Financial assets:       
BOLI$67,393
 $67,393
 $66,112
 $66,112
Other investments$2,936
 $2,936
 $2,931
 $2,931
Other assets$27,697
 $27,710
 $28,645
 $28,650
Financial liabilities:       
Senior notes due 2023*$250,000
 $266,585
 $250,000
 $273,865
Mortgage Loans*$36,489
 $36,489
 $37,617
 $37,617
Other liabilities$27,077
 $27,077
 $27,953
 $27,953
* Carrying value excludes unamortized debt issuance costs.

 March 31, 2021December 31, 2020
(In thousands)Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
Financial assets:
BOLI$66,932 $66,932 $67,847 $67,847 
Other investments$2,370 $2,370 $2,952 $2,952 
Other assets$33,869 $33,885 $31,128 $31,141 
Financial liabilities:
Senior notes due 2023*$250,000 $271,105 $250,000 $269,160 
Mortgage Loans*$35,723 $35,723 $36,113 $36,113 
Other liabilities$32,548 $32,548 $30,334 $30,334 
* Carrying value excludes unamortized debt issuance costs.
The fair value of the BOLI was equal to the cash surrender value associated with the policies on the valuation date.
Other investments listed in the table above include FHLB common stock carried at cost and an annuity investment carried at amortized cost. Two of ProAssurance's insurance subsidiaries are members of an FHLB. The estimated fair value of the FHLB common stock was based on the amount the subsidiaries would receive if their memberships were canceled, as the memberships cannot be sold. The fair value of the annuity represents the present value of the expected future cash flows discounted using a rate available in active markets for similarly structured instruments.
Other assets and other liabilities primarily consisted of related investment assets and liabilities associated with funded deferred compensation agreements. The fair value of the funded deferred compensation assets was based upon quoted market prices, which is categorized as a Level 1 valuation, and had a fair value of $27.2$32.8 million and $26.9$30.6 million at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. The deferred compensation liabilities are adjusted to match the fair value of the deferred compensation assets. Other assets also included an unsecured note receivable under a separate line of credit agreement. The fair value of the note receivable was based on the present value of expected cash flows from the note receivable, discounted at market rates on the valuation date for receivables with similar credit standings and similar payment structures.
The fair value of the debt was estimated based on the present value of expected future cash outflows, discounted at rates available on the valuation date for similar debt issued by entities with a similar credit standing to ProAssurance.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

3. Investments
Available-for-sale fixed maturities at September 30, 2020March 31, 2021 and December 31, 20192020 included the following:
March 31, 2021
(In thousands)Amortized
Cost		Gross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Fixed maturities, available-for-sale
U.S. Treasury obligations$101,045 $2,088 $256 $102,877 
U.S. Government-sponsored enterprise obligations11,959 106 121 11,944 
State and municipal bonds312,809 11,196 1,540 322,465 
Corporate debt1,395,466 42,572 9,172 1,428,866 
Residential mortgage-backed securities268,344 5,727 2,523 271,548 
Agency commercial mortgage-backed securities13,196 537 15 13,718 
Other commercial mortgage-backed securities119,145 3,254 1,080 121,319 
Other asset-backed securities287,659 3,227 350 290,536 
$2,509,623 $68,707 $15,057 $2,563,273 
September 30, 2020 December 31, 2020
(In thousands)Amortized
Cost		 Allowance for Expected Credit Losses Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value(In thousands)Amortized
Cost		Allowance for Expected Credit LossesGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Fixed maturities, available-for-sale         Fixed maturities, available-for-sale
U.S. Treasury obligations$113,155
 $0
 $4,215
 $6
 $117,364
U.S. Treasury obligations$104,097 $0 $2,985 $23 $107,059 
U.S. Government-sponsored enterprise obligations10,888
 0
 168
 1
 11,055
U.S. Government-sponsored enterprise obligations12,103 0 158 0 12,261 
State and municipal bonds301,542
 0
 17,664
 114
 319,092
State and municipal bonds316,022 0 16,937 39 332,920 
Corporate debt1,255,139
 552
 58,359
 5,765
 1,307,181
Corporate debt1,267,992 552 63,204 1,302 1,329,342 
Residential mortgage-backed securities240,239
 0
 7,518
 439
 247,318
Residential mortgage-backed securities269,752 0 7,171 382 276,541 
Agency commercial mortgage-backed securities13,461
 0
 711
 1
 14,171
Agency commercial mortgage-backed securities12,623 0 687 — 13,310 
Other commercial mortgage-backed securities96,414
 0
 4,055
 1,393
 99,076
Other commercial mortgage-backed securities109,244 0 4,788 940 113,092 
Other asset-backed securities268,075
 0
 4,048
 1,295
 270,828
Other asset-backed securities269,742 0 4,006 742 273,006 
$2,298,913
 $552
 $96,738
 $9,014
 $2,386,085
$2,361,575 $552 $99,936 $3,428 $2,457,531 

 December 31, 2019
(In thousands)Amortized
Cost		 Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Fixed maturities, available-for-sale       
U.S. Treasury obligations$109,060
 $1,533
 $126
 $110,467
U.S. Government-sponsored enterprise obligations17,215
 125
 0
 17,340
State and municipal bonds287,658
 9,110
 675
 296,093
Corporate debt1,308,889
 33,050
 1,575
 1,340,364
Residential mortgage-backed securities205,588
 3,139
 319
 208,408
Agency commercial mortgage-backed securities8,054
 182
 15
 8,221
Other commercial mortgage-backed securities70,621
 1,468
 221
 71,868
Other asset-backed securities234,219
 1,958
 153
 236,024
 $2,241,304

$50,565

$3,084
 $2,288,785
23



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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

The recorded cost basis and estimated fair value of available-for-sale fixed maturities at September 30, 2020,March 31, 2021, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(In thousands)Amortized
Cost		 Due in one
year or less		 Due after
one year
through
five years		 Due after
five years
through
ten years		 Due after
ten years		 Total Fair
Value
Fixed maturities, available-for-sale           
U.S. Treasury obligations$113,155
 $27,797
 $73,917
 $15,650
 $0
 $117,364
U.S. Government-sponsored enterprise obligations10,888
 0
 7,895
 3,004
 156
 11,055
State and municipal bonds301,542
 21,703
 120,512
 147,827
 29,050
 319,092
Corporate debt1,255,139
 135,080
 715,768
 408,824
 47,509
 1,307,181
Residential mortgage-backed securities240,239
 
 
 
 
 247,318
Agency commercial mortgage-backed securities13,461
 
 
 
 
 14,171
Other commercial mortgage-backed securities96,414
 
 
 
 
 99,076
Other asset-backed securities268,075
 
 
 
 
 270,828
 $2,298,913
         $2,386,085

(In thousands)Amortized
Cost		Due in one
year or less		Due after
one year
through
five years		Due after
five years
through
ten years		Due after
ten years		Total Fair
Value
Fixed maturities, available-for-sale
U.S. Treasury obligations$101,045 $23,143 $70,919 $8,815 $0 $102,877 
U.S. Government-sponsored enterprise obligations11,959 3,870 5,044 2,887 143 11,944 
State and municipal bonds312,809 6,114 153,779 144,719 17,853 322,465 
Corporate debt1,395,466 140,572 755,625 481,431 51,238 1,428,866 
Residential mortgage-backed securities268,344 271,548 
Agency commercial mortgage-backed securities13,196 13,718 
Other commercial mortgage-backed securities119,145 121,319 
Other asset-backed securities287,659 290,536 
$2,509,623 $2,563,273 
Excluding obligations of the U.S. Government, U.S. Government-sponsored enterprises and a U.S. Government obligations money market fund, 0 investment in any entity or its affiliates exceeded 10% of shareholders’ equity at September 30, 2020.March 31, 2021.
Cash and securities with a carrying value of $42.6$41.7 million at September 30, 2020March 31, 2021 were on deposit with various state insurance departments to meet regulatory requirements.
As a member of Lloyd's, ProAssurance is required to maintain capital at Lloyd's, referred to as FAL, to support underwriting by Syndicate 1729 and Syndicate 6131. At September 30, 2020,March 31, 2021, ProAssurance's FAL investments were comprised of available-for-sale fixed maturities with a fair value of $98.3$102.8 million and cash and cash equivalents of $7.5$4.0 million on deposit with Lloyd's in order to satisfy these FAL requirements. During the third quarter of 2020, ProAssurance received a return of approximately $32.3 million of cash and cash equivalents from its FAL balances given the Company's reduced participation in the results of Syndicate 1729 for the 2020 underwriting year to 29% from 61%.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

Investments Held in a Loss Position
The following tables provide summarized information with respect to investments held in an unrealized loss position at September 30, 2020March 31, 2021 and December 31, 2019,2020, including the length of time the investment had been held in a continuous unrealized loss position.
March 31, 2021
 TotalLess than 12 months12 months or longer
 FairUnrealizedFairUnrealizedFairUnrealized
(In thousands)ValueLossValueLossValueLoss
Fixed maturities, available-for-sale
U.S. Treasury obligations$26,250 $256 $26,250 $256 $0 $0 
U.S. Government-sponsored enterprise obligations5,714 121 5,714 121 0 0 
State and municipal bonds67,604 1,540 67,604 1,540 0 0 
Corporate debt397,470 9,172 370,642 8,704 26,828 468 
Residential mortgage-backed securities105,643 2,523 99,580 2,253 6,063 270 
Agency commercial mortgage-backed securities1,276 15 1,276 15 0 0 
Other commercial mortgage-backed securities41,832 1,080 35,400 437 6,432 643 
Other asset-backed securities71,365 350 59,054 280 12,311 70 
$717,154 $15,057 $665,520 $13,606 $51,634 $1,451 
 September 30, 2020
 Total Less than 12 months 12 months or longer
 Fair Unrealized Fair Unrealized Fair Unrealized
(In thousands)Value Loss Value Loss Value Loss
Fixed maturities, available-for-sale           
U.S. Treasury obligations$11,069
 $6
 $11,069
 $6
 $0
 $0
U.S. Government-sponsored enterprise obligations1,420
 1
 1,420
 1
 0
 0
State and municipal bonds13,021
 114
 13,021
 114
 0
 0
Corporate debt171,059
 5,765
 152,089
 4,737
 18,970
 1,028
Residential mortgage-backed securities28,926
 439
 28,475
 435
 451
 4
Agency commercial mortgage-backed securities834
 1
 834
 1
 0
 0
Other commercial mortgage-backed securities23,189
 1,393
 22,825
 1,386
 364
 7
Other asset-backed securities80,142
 1,295
 74,277
 1,231
 5,865
 64
 $329,660
 $9,014
 $304,010
 $7,911
 $25,650
 $1,103

 December 31, 2019
 Total Less than 12 months 12 months or longer
 Fair Unrealized Fair Unrealized Fair Unrealized
(In thousands)Value Loss Value Loss Value Loss
Fixed maturities, available-for-sale           
U.S. Treasury obligations$25,959
 $126
 $15,305
 $103
 $10,654
 $23
State and municipal bonds36,565
 675
 35,621
 674
 944
 1
Corporate debt128,254
 1,575
 88,582
 932
 39,672
 643
Residential mortgage-backed securities59,291
 319
 28,048
 63
 31,243
 256
Agency commercial mortgage-backed securities459
 15
 158
 0
 301
 15
Other commercial mortgage-backed securities18,339
 221
 16,924
 206
 1,415
 15
Other asset-backed securities48,912
 153
 37,322
 145
 11,590
 8
 $317,779
 $3,084
 $221,960
 $2,123
 $95,819
 $961

December 31, 2020
 TotalLess than 12 months12 months or longer
 FairUnrealizedFairUnrealizedFairUnrealized
(In thousands)ValueLossValueLossValueLoss
Fixed maturities, available-for-sale
U.S. Treasury obligations$14,390 $23 $14,390 $23 $0 $0 
State and municipal bonds6,416 39 6,416 39 0 0 
Corporate debt94,695 1,302 79,436 1,020 15,259 282 
Residential mortgage-backed securities34,928 382 34,509 381 419 1 
Other commercial mortgage-backed securities18,766 940 18,480 935 286 5 
Other asset-backed securities43,739 742 37,850 701 5,889 41 
$212,934 $3,428 $191,081 $3,099 $21,853 $329 
As of September 30, 2020,March 31, 2021, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 490784 debt securities (19.2%(28.5% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 358514 issuers. The greatest and second greatest unrealized loss positions among those securities were each approximately $0.5 million. The securities were evaluated for impairment as of March 31, 2021.
As of December 31, 2020, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 292 debt securities (11.1% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 229 issuers. The greatest and second greatest unrealized loss positions among those securities were approximately $0.7$0.4 million and $0.5 million, respectively. The securities were evaluated for impairment as of September 30, 2020.
As of December 31, 2019, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 263 debt securities (12.1% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 204 issuers. The greatest and second greatest unrealized loss positions among those securities were approximately $0.2 million and $0.1 million, respectively. The securities were evaluated for impairment as of December 31, 2019.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

2020.
Each quarter, ProAssurance performs a detailed analysis for the purpose of assessing whether any of the securities it holds in an unrealized loss position has suffered an impairment due to credit or non-credit factors. A detailed discussion of the factors considered in the assessment is included in Note 1.1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2021
Fixed maturity securities held in an unrealized loss position at September 30, 2020,March 31, 2021, excluding asset-backed securities, have paid all scheduled contractual payments and are expected to continue doing so. Expected future cash flows of asset-backed securities, excluding those issued by GNMA, FNMA and FHLMC, held in an unrealized loss position were estimated as part of the September 30, 2020March 31, 2021 impairment evaluation using the most recently available six-month historical performance data for the collateral (loans) underlying the security or, if historical data was not available, sector based assumptions, and equaled or exceeded the current amortized cost basis of the security.
The following tables present a roll forward of the allowance for expected credit losses on available-for-sale fixed maturities for the three and nine months ended September 30,March 31, 2021 and 2020.
Three Months Ended March 31, 2021
(In thousands)Corporate DebtTotal
Balance at December 31, 2020$552 $552 
Reductions related to:
Securities sold during the period(552)(552)
Balance at March 31, 2021$0 $0 
 Three Months Ended September 30, 2020
(In thousands)Corporate DebtTotal
Balance July 1, 2020$1,408
$1,408
Reductions related to:  
Securities sold during the period(856)(856)
Balance September 30, 2020$552
$552
 Nine Months Ended September 30, 2020
(In thousands)Corporate DebtTotal
Balance December 31, 2019$0
$0
Additional credit losses related to securities for which: 

No allowance for credit losses has been previously recognized1,508
1,508
Reductions related to: 

Securities sold during the period(956)(956)
Balance September 30, 2020$552
$552

Three Months Ended March 31, 2020
(In thousands)Corporate DebtTotal
Balance at December 31, 2019$0 $0 
Additional credit losses related to securities for which:
No allowance for credit losses has been previously recognized1,163 1,163 
Balance at March 31, 2020$1,163 $1,163 
Other information regarding sales and purchases of fixed maturity available-for-sale securities is as follows:
 Three Months Ended September 30 Nine Months Ended September 30
(In millions)2020 2019 2020 2019
Proceeds from sales (exclusive of maturities and paydowns)$86.9
 $21.9
 $304.6
 $115.2
Purchases$317.5
 $202.3
 $689.4
 $553.2

Three Months Ended March 31
(In millions)20212020
Proceeds from sales (exclusive of maturities and paydowns)$61.9 $64.9 
Purchases$342.2 $227.5 
Equity Investments
ProAssurance's equity investments are carried at fair value with changes in fair value recognized in income as a component of net realized investment gains (losses) during the period of change. Equity investments on the Condensed Consolidated Balance Sheets as of September 30, 2020March 31, 2021 and December 31, 20192020 primarily included stocks, bond funds and investment funds.
Short-term Investments
ProAssurance's short-term investments, which have a maturity at purchase of one year or less, are primarily comprised of investments in U.S. treasury obligations, commercial paper and money market funds. Short-term investments are carried at fair value which approximates the cost of the securities due to their short-term nature.
BOLI
ProAssurance holds BOLI policies that are carried at the current cash surrender value of the policies (original cost $33 million). All insured individuals were members of ProAssurance management at the time the policies were acquired. The primary purpose of the program is to offset future employee benefit expenses through earnings on the cash value of the policies. ProAssurance is the owner and beneficiary of these policies.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

Net Investment Income
Net investment income by investment category was as follows:
 Three Months Ended
September 30		 Nine Months Ended
September 30
(In thousands)2020 2019 2020 2019
Fixed maturities$16,902
 $18,362
 $52,863
 $54,154
Equities706
 3,942
 3,598
 13,755
Short-term investments, including Other405
 2,012
 2,386
 5,466
BOLI655
 645
 1,568
 1,557
Investment fees and expenses(1,744) (1,280) (4,538) (4,894)
Net investment income$16,924
 $23,681
 $55,877
 $70,038

Three Months Ended
March 31
(In thousands)20212020
Fixed maturities$15,692 $18,285 
Equities694 1,909 
Short-term investments, including Other273 1,472 
BOLI444 456 
Investment fees and expenses(2,086)(1,292)
Net investment income$15,017 $20,830 
Investment in Unconsolidated Subsidiaries
ProAssurance's investment in unconsolidated subsidiaries were as follows:
 September 30, 2020 Carrying Value
(In thousands)Percentage
Ownership		 September 30,
2020		 December 31,
2019
Qualified affordable housing project tax credit partnershipsSee below $32,263
 $46,421
Other tax credit partnershipsSee below 0
 2,085
All other investments, primarily investment fund LPs/LLCsSee below 280,585
 310,314
   $312,848
 $358,820

 March 31, 2021Carrying Value
(In thousands)Percentage
Ownership		March 31,
2021		December 31,
2020
Qualified affordable housing project tax credit partnershipsSee below$24,351 $27,719 
All other investments, primarily investment fund LPs/LLCsSee below275,009 282,810 
$299,360 $310,529 
Qualified affordable housing project tax credit partnership interests held by ProAssurance generate investment returns by providing tax benefits to fund investors in the form of tax credits and project operating losses. The carrying value of these investments reflects ProAssurance's total commitments (both funded and unfunded) to the partnerships, less any amortization. ProAssurance's ownership percentage relative to 2 of the tax credit partnership interests is almost 100%; these interests had a carrying value of $11.4$8.1 million at September 30, 2020March 31, 2021 and $17.2$9.4 million at December 31, 2019.2020. ProAssurance's ownership percentage relative to the remaining tax credit partnership interests is less than 20%; these interests had a carrying value of $20.9$16.3 million at September 30, 2020March 31, 2021 and $29.2$18.3 million at December 31, 2019.2020. Since ProAssurance has the ability to exert influence over the partnerships but does not control them, all are accounted for using the equity method. See further discussion of the entities in which ProAssurance holds passive interests in Note 11.
ProAssurance's other tax credit partnership is an investment in a historic tax credit partnership that generates investment returns by providing benefits to fund investors in the form of tax credits, tax deductible project operating losses and positive cash flows. The carrying value of this investment reflects ProAssurance's total funded commitment less any amortization. During the second quarter of 2020, this investment was fully amortized up to the total current funded commitment. However, during the third quarter of 2020, ProAssurance received a distribution associated with this investment and, as such, amortization of this distribution resulted in ProAssurance recognizing a project operating gain during the current period. ProAssurance's ownership percentage relative to the historic tax credit partnership is almost 100%. Since ProAssurance has the ability to exert influence over the partnership but does not control it, it is accounted for using the equity method. See further discussion of the entities in which ProAssurance holds passive interests in Note 11.12.
ProAssurance holds interests in investment fund LPs/LLCs and other equity method investments and LPs/LLCs which are not considered to be investment funds. ProAssurance's ownership percentage relative to 4 of the LPs/LLCs is greater than 25%, which is expected to be reduced as the funds mature and other investors participate in the funds; these investments had a carrying value of $48.2$47.0 million at September 30, 2020March 31, 2021 and $41.0$46.2 million at December 31, 2019.2020. ProAssurance's ownership percentage relative to the remaining investments and LPs/LLCs is less than 25%; these interests had a carrying value of $232.4$228.0 million at September 30, 2020March 31, 2021 and $269.3$236.6 million at December 31, 2019.2020. ProAssurance does not have the ability to exert control over any of these funds.

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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings (loss) of unconsolidated subsidiaries included losses from qualified affordable housing project tax credit partnerships and a historic tax credit partnership. Investment results recorded reflect ProAssurance's allocable portion of partnership operating results. Tax credits reduce income tax expense in the period they are recognized. The results recorded and tax credits recognized related to ProAssurance's tax credit partnership investments were as follows:
 Three Months Ended
September 30		 Nine Months Ended
September 30
(In thousands)2020 2019 2020 2019
Qualified affordable housing project tax credit partnerships       
Losses recorded$4,798
 $5,077
 $14,152
 $14,674
Tax credits recognized$4,369
 $4,531
 $13,106
 $13,594
        
Historic tax credit partnership       
Losses (gains) recorded$(264) $695
 $1,820
 $1,187
Tax credits recognized$103
 $103
 $309
 $309

Three Months Ended
March 31
(In thousands)20212020
Qualified affordable housing project tax credit partnerships
Losses recorded$3,368 $4,342 
Tax credits recognized$3,324 $4,369 
Historic tax credit partnership*
Losses (gains) recorded$(182)$323 
Tax credits recognized$50 $103 
* ProAssurance holds a historic tax credit partnership which was fully amortized in 2020. ProAssurance received a distribution associated with this investment during the three months ended March 31, 2021 as a result of positive cash flows from a project recognizing an operating gain. See further discussion on this investment in Note 3 of the Notes to the Consolidated Financial Statements in ProAssurance’s December 31, 2020 report on Form 10-K.
Due to the consolidated loss before income taxes recognized during the three and nine months ended September 30, 2020, theThe tax credits generated in 2020 from the Company's tax credit partnership investments of $4.5$3.4 million and $13.4 million, respectively,for the three months ended March 31, 2021 were deferred and are expected to be utilized in future periods.
Tax credits provided by the underlying projects of the Company's historic tax credit partnership are typically available in the tax year in which the project is put into active service, whereas the tax credits provided by qualified affordable housing project tax credit partnerships are provided over approximately a ten year period.
Significant Equity Method Investee
As previously discussed, ProAssurance holds certain investments that are measured using the equity method of accounting, primarily investments in LPs/LLCs, which are carried as a part of Investment in Unconsolidated Subsidiaries on the Condensed Consolidated Balance Sheet. Each quarter, ProAssurance assesses the significance of its equity method investees. As of March 31, 2021, ProAssurance determined one equity method investee, NB Private Equity Credit Opportunities Fund LP, to be significant. This fund invests primarily in senior/junior debt instruments of private equity backed companies, including secured and unsecured loans, bonds and other instruments. The following table presents gross summarized financial information for this fund, including the portion not attributable to ProAssurance, derived from the fund's financial statements which are prepared in accordance with GAAP. As the majority of ProAssurance's equity method investments report their results to the Company on a one quarter lag, the summarized financial information below represents this fund's results for the three months ended December 31, 2020.
Three Months Ended March 31, 2021
(In thousands)
Net investment income$40,636
Net realized investment gains (losses)14,587
Net change in unrealized appreciation (depreciation)61,777
Net gain (loss)$117,000
Net gain (loss) attributable to ProAssurance*$2,056
*Represents ProAssurance's share of the fund's aggregate income or loss, which is included as a component of equity in earnings (loss) of unconsolidated subsidiaries in its Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2021.
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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2021
Net Realized Investment Gains (Losses)
Realized investment gains and losses are recognized on the first-in, first-out basis. The following table provides detailed information regarding net realized investment gains (losses):
 Three Months Ended
September 30		 Nine Months Ended
September 30
(In thousands)2020 2019 2020 2019
Total impairment losses:       
Corporate debt$0
 $(66) $(1,745) $(202)
Portion of impairment losses recognized in other comprehensive income before taxes:       
Corporate debt0
 36
 237
 124
Net impairment losses recognized in earnings0
 (30) (1,508) (78)
Gross realized gains, available-for-sale fixed maturities3,996
 654
 10,941
 2,028
Gross realized (losses), available-for-sale fixed maturities(396) (124) (2,266) (493)
Net realized gains (losses), trading fixed maturities116
 8
 268
 (18)
Net realized gains (losses), equity investments31
 2,451
 10,589
 13,459
Net realized gains (losses), other investments530
 397
 2,442
 974
Change in unrealized holding gains (losses), trading fixed maturities373
 278
 637
 753
Change in unrealized holding gains (losses), equity investments2,766
 (2,157) (21,012) 27,775
Change in unrealized holding gains (losses), convertible securities, carried at fair value1,170
 (408) (190) 2,597
Other252
 65
 249
 67
Net realized investment gains (losses)$8,838
 $1,134
 $150
 $47,064

Three Months Ended
March 31
(In thousands)20212020
Total impairment losses:
Corporate debt$0 $(1,817)
Portion of impairment losses recognized in other comprehensive income before taxes:
Corporate debt— 654 
Net impairment losses recognized in earnings0 (1,163)
Gross realized gains, available-for-sale fixed maturities4,294 2,427 
Gross realized (losses), available-for-sale fixed maturities(187)(1,403)
Net realized gains (losses), trading fixed maturities72 103 
Net realized gains (losses), equity investments4,189 15,190 
Net realized gains (losses), other investments3,196 48 
Change in unrealized holding gains (losses), trading fixed maturities(214)(118)
Change in unrealized holding gains (losses), equity investments(2,937)(38,477)
Change in unrealized holding gains (losses), convertible securities, carried at fair value(190)(5,273)
Other626 (7)
Net realized investment gains (losses)$8,849 $(28,673)
For the three months ended March 31, 2021, ProAssurance did not recognize any credit-related impairment losses in earnings or non-credit impairment losses in OCI forOCI. For the three months ended September 30, 2020. For the nine months ended September 30,March 31, 2020, ProAssurance recognized credit-related impairment losses in earnings of approximately $1.5$1.2 million and a nominal amount of non-credit impairment losses in OCI.OCI of $0.7 million. The credit-related impairment losses recognized during the 2020 nine-month period related to corporate bonds in the energy and consumer sectors. Additionally, the 2020 nine-month period included credit-related impairment losses related to four corporate bonds in various sectors, which were sold during 2020.the energy, consumer and entertainment sectors. The non-credit related impairment losses recognized during the 2020 nine-month period related to three corporate bonds in the energy and consumer sectors. For the three and nine months

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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

ended September 30, 2019, ProAssurance recognized a nominal amount of both credit-related impairment losses in earnings and non-credit impairment losses in OCI, both of which related to a corporate bond.
ProAssurance recognized $8.8 million and $0.2 million of net realized investment gains during the three and nine months ended September 30, 2020, respectively. Net realized investment gains during the 2020 three-month period wereMarch 31, 2021, driven by gains in the Company's available-for-sale fixed maturities due to the sale of corporate bonds and, to a lesser extent, unrealized holding gains resulting from an increase in fair value on the Company's equity portfolio and convertible securities. Net realized investment gains for the 2020 nine-month period were drivenprimarily by realized gains on the sale of available-for-sale fixed maturities and equity investments and, to a lesser extent, unrealized holding gains on trading securities, which were almost entirely offsetinvestments. ProAssurance recognized $28.7 million of net realized investment losses during the three months ended March 31, 2020 driven by unrealized holding losses resulting fromthe impact of decreases in the fair value on the Company'sits equity portfolio dueof $38.5 million and convertible securities of $5.3 million attributable to the volatilitydisruptions in the global financial markets related to COVID-19. ProAssurance recognized $1.1 million and $47.1 million of net realized investment gainsCOVID-19 during the three and nine months ended September 30, 2019, respectively. Net realized investment gains for the three months ended September 30, 2019 were driven by realized gains from the salefirst quarter of equity investments, partially offset by unrealized holding losses on the Company's equity portfolio during the period. For the nine months ended September 30, 2019, net realized investment gains were driven by unrealized holding gains on the Company's equity portfolio and realized gains from the sale of equity investments during the period. The primary driver of the unrealized holding gains during the nine months ended September 30, 2019 was the improvement in the market since December 31, 2018, which caused the Company's equity securities to increase in value. The most significant sectors that benefited were the financial and energy sectors.2020.
The following table presents a roll forward of cumulative credit losses recorded in earnings related to impaired debt securities for which a portion of the impairment was recorded in OCI.
Three Months Ended
March 31
(In thousands)20212020
Balance beginning of period$552 $470 
Additional credit losses recognized during the period, related to securities for which:
No impairment has been previously recognized0 1,064 
Reductions due to:
Securities sold during the period (realized)(552)0 
Balance March 31$0 $1,534 
 Three Months Ended
September 30		 Nine Months Ended
September 30
(In thousands)2020 2019 2020 2019
Balance beginning of period$1,322
 $142
 $470
 $93
Additional credit losses recognized during the period, related to securities for which:       
No impairment has been previously recognized0
 0
 1,064
 49
Impairment has been previously recognized0
 30
 258
 30
Reductions due to:       
Securities sold during the period (realized)(770) 0
 (1,240) 0
Balance September 30$552
 $172
 $552
 $172
29

Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2021
4. Retroactive Insurance Contracts
ProAssurance offers custom alternative risk solutions which includes assumed reinsurance. In the first quarter of 2021, ProAssurance entered into an assumed reinsurance arrangement with a regional hospital group. As the contract included both prospective coverage and retroactive coverage, ProAssurance bifurcated the provisions of the contract and accounted for each component separately. As of the contract effective date, ProAssurance recognized total net premiums written of $4.5 million, comprised of $2.2 million of prospective coverage and $2.3 million of retroactive coverage, total net premiums earned of $3.0 million, comprised of $0.7 million of prospective coverage and $2.3 million of retroactive coverage and total net losses and loss adjustment expenses of $2.9 million in the Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2021. For additional information regarding ProAssurance's accounting policy for retroactive insurance contracts, see Note 1 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2020 report on Form 10-K.
5. Income Taxes
For interim periods, ProAssurance generally utilizes the estimated annual effective tax rate method under which the Company determines its provision (benefit) for income taxes based on the current estimate of its annual effective tax rate. Under the estimated annual effective tax rate method, items which are unusual, infrequent, or that cannot be reliably estimated are considered in the effective tax rate in the period in which the item is included in income, and are referred to as discrete items. The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes primarily because ProAssurance recognizes tax credit benefits transferred from tax credit partnership investments. In calculating the Company's year-to-date income tax expense (benefit), the Company includes the estimated benefit of tax credits for the year-to-date period based on the most recently available information provided by the tax credit partnerships; the actual amounts of credits provided by the tax credit partnerships may prove to be different than the Company's estimates. The effect of such a difference is recognized in the period identified. Furthermore the Company's pre-tax loss included a $161.1 million goodwill impairment recognized in relation to the Specialty P&C reporting unit during the third quarter of 2020 which was treated as a discrete item as the Company considered it to be an unusual and infrequent item. Of the $161.1 million goodwill impairment, $149.6 million was non-deductible for which no tax benefit was recognized while the remaining $11.5 million was deductible for which a 21% tax benefit was recognized. See further discussion on this goodwill impairment in Notes 1 and 5.
ProAssurance had a receivable for U.S. federal and U.K. income taxes carried as a part of other assets of $25.6$6.6 million at September 30, 2020March 31, 2021 and $8.0$18.9 million at December 31, 2019.2020. The liability for unrecognized tax benefits, which is included in the total receivable for U.S. federal and U.K. income taxes, was $11.2$5.8 million and $5.7 million at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, which included an accrued liability for interest of approximately $0.8$0.6 million and $0.6$0.5 million, respectively.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

Tax Cuts and Jobs Act
ProAssurance recognized a nominal amount of tax expense related to the GILTI provision of the TCJA during each of the three and nine months ended September 30, 2020 and 2019. During the three and nine months ended September 30, 2020 and 2019, ProAssurance did not recognize any incremental tax expense related to the BEAT provision of the TCJA. For additional information regarding ProAssurance's accounting for certain provisions of the TCJA, see Note 6 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2019 report on Form 10-K.
Coronavirus Aid, Relief and Economic Security Act
In response to COVID-19, the CARES Act was signed into law on March 27, 2020 and contains several provisions for corporations and eases certain deduction limitations originally imposed by the TCJA. TheSee further discussion in Note 5 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K. As a result of the CARES Act, among other things, includes temporary changes regardingProAssurance now has the priorability to carryback NOLs generated in tax years 2018, 2019 and future utilization of NOLs, temporary changes2020 for up to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes and the creation of certain refundable employee retention credits. ProAssurancefive years. The Company has an NOL of approximately $26.1$45.3 million from the 20192020 tax year that will be carried back to the 20142015 tax year and is expected to generate a tax refund of approximately $9.1$15.9 million. ProAssuranceAdditionally, the Company had an NOL of approximately $25.6 million from the 2019 tax year which was carried back to the 2014 tax year and generated a tax refund of approximately $9.0 million which the Company received in February 2021.
American Rescue Plan Act of 2021
In response to economic concerns associated with COVID-19, the American Rescue Plan Act of 2021 was signed into law on March 11, 2021 and includes an expansion of the number of employees covered by the limitation on the deductibility of compensation in excess of $1 million. This provision is effective for tax years beginning after December 31, 2026. The Company has evaluated this provision as well as the other provisions of the CARESAmerican Rescue Plan Act of 2021 and has concluded that they will not have a material impact on the Company'sProAssurance's financial position or results of operations.operations as of March 31, 2021.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2021
6. Goodwill
Goodwill is recognized in conjunction with business acquisitions as the excess of the purchase consideration for the business acquisition over the fair value of identifiable assets acquired and liabilities assumed. The fair value of identifiable assets and liabilities, and thus goodwill, is subject to redetermination within a measurement period of up to one year following completion of a business acquisition.
Goodwill is tested for impairment annually or more frequently if circumstances indicate an impairment may have occurred. The date of the Company's annual goodwill impairment test is October 1. Impairment of goodwill is tested at the reporting unit level, which is consistent with the Company's reportable segments identified in Note 13. 14. See Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K for further information on how the Company tests goodwill for impairment.
Of the Company's 5 reporting units, 32 have goodwill - Specialty P&C,net goodwill: Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance.
As discussed in Note 1, during the three and nine months ended September 30, 2020 the Company recorded a pre-tax impairment charge of $161.1 million to fully impair the goodwill in the Specialty P&C reporting unit.
There were no changes in the carrying amount of goodwill or accumulated impairment losses for the nine months ended September 30, 2019. The table below presents the carrying amount of goodwill and accumulated impairment losses by reporting unit at September 30,March 31, 2021 and December 31, 2020:
Reporting Unit
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell ReinsuranceTotal
Goodwill, gross as of January 1, 2020$161,115 $44,110 $5,500 $210,725 
Accumulated impairment losses*(161,115)0 0 (161,115)
Goodwill, net as of December 31, 20200 44,110 5,500 49,610 
Accumulated impairment losses0 0 0 0 
Goodwill, net as of March 31, 2021$0 $44,110 $5,500 $49,610 
 Reporting Unit 
(In thousands)Specialty P&C Workers' Compensation Insurance Segregated Portfolio Cell Reinsurance Total
Goodwill, gross as of January 1, 2020$161,115
 $44,110
 $5,500
 $210,725
Accumulated impairment losses*(161,115) 0
 0
 (161,115)
Goodwill, net as of September 30, 2020$0

$44,110

$5,500
 $49,610
*Accumulated impairment losses representsin 2020 represent the pre-tax impairment loss of $161.1 million recognized during the third quarter of 2020 in relation to the Specialty P&C reporting unit during the three and nine months ended September 30, 2020.unit. There were no other impairment losses taken prior to 2020.

 For additional information regarding ProAssurance's goodwill impairment in 2020, see Note 1 and Note 6 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2020 report on Form 10-K.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

6.7. Reserve for Losses and Loss Adjustment Expenses
The reserve for losses is established based on estimates of individual claims and actuarially determined estimates of future losses based on ProAssurance’s past loss experience, available industry data and projections as to future claims frequency, severity, inflationary trends and settlement patterns. Estimating the reserve, particularly the reserve appropriate for liability exposures, is a complex process. For a high proportion of the risks insured or reinsured by ProAssurance, claims may be resolved over an extended period of time, often five years or more, and may be subject to litigation. Estimating losses requires ProAssurance to make and revise judgments and assessments regarding multiple uncertainties over an extended period of time. As a result, the reserve estimate may vary considerably from the eventual outcome. The assumptions used in establishing ProAssurance’s reserve are regularly reviewed and updated by management as new data becomes available. Changes to estimates of previously established reserves are included in earnings in the period in which the estimate is changed.
ProAssurance believes that the methods it uses to establish reserves are reasonable and appropriate. Each year, ProAssurance uses internal actuaries to review the reserve for losses of each insurance subsidiary. ProAssurance also engages consulting actuaries to review ProAssurance claims data and provide observations regarding cost trends, rate adequacy and ultimate loss costs. The statutory filings of each insurance company with the insurance regulators must be accompanied by a consulting actuary's certification as to their respective reserves. ProAssurance considers the views of the actuaries as well as other factors, such as premium rates, claims frequency and severity, historical paid and incurred loss development trends, and an evaluation of the current loss environment including frequency, severity, the expected effect of inflation, general economic and social trends, and the legal and political environment in establishing the amount of its reserve for losses. As of September 30, 2020, theThe Company expects there will be impacts to these factors as well as to the timing of loss emergence and ultimate loss ratios for certain coverages it underwrites as a result of COVID-19 and the related economic shutdown; however, the extent to which COVID-19 impacts these factors is highly uncertain and cannot be predicted.predicted (see "Item 1A, Risk Factors" and Note 8 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K for additional information). The industry is experiencing new conditions, including the postponement of court cases, changes in settlement trends and a significant reduction in economic activity and insured exposure in some classes. ProAssurance's booked reserves as of September 30, 2020March 31, 2021 include consideration of these factors, but the duration and degree to which these issues persist, along with potential legislative, regulatory or judicial actions, could result in significant changes to the Company's reserve estimates in future periods.
ProAssurance partitions its reserve by accident year, which is the year in which the claim becomes its liability. For claims-made policies, the insured event generally becomes a liability when the event is first reported to the Company. For occurrence policies, the insured event becomes a liability when the event takes place. For retroactive coverages, the insured event becomes a liability at inception of the underlying contract. As claims are incurred (reported) and claim payments are made, they are aggregated by accident year for analysis purposes. ProAssurance also partitions its reserve by reserve type: case reserves and IBNR reserves. Case reserves are established by the claims department based upon the particular circumstances of each reported claim and represent ProAssurance’s estimate of the future loss costs (often referred to as expected losses) that will be paid on reported claims. Case reserves are decremented as claim payments are made and are periodically adjusted upward or downward as estimates regarding the amount of future losses are revised; a reported loss for an individual claim equates to the case reserve at any point in time plus the claim payments that have been made to date. IBNR reserves represent an estimate, in the aggregate, of future development on losses that have been reported to ProAssurance plus an estimate of losses that have been incurred but not reported.
Development of Prior Accident Years
In addition to setting the initial reserve for the current accident year, each period ProAssurance reassesses the amount of reserve required for prior accident years. The foundation of ProAssurance’s reserve re-estimation process is an actuarial analysis that is performed by both the internal and consulting actuaries. This detailed analysis projects ultimate losses based on partitions which include line of business, geography, coverage layer and accident year. The procedure uses the most representative data for each partition, capturing its unique patterns of development and trends. In all, there are over 200 different partitions of ProAssurance's business for purposes of this analysis. ProAssurance believes that the use of consulting actuaries provides an independent view of the loss data as well as a broader perspective on industry loss trends.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

Activity in the reserve for losses and loss adjustment expenses is summarized as follows:
(In thousands)Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019 Year Ended December 31, 2019
Balance, beginning of year$2,346,526
 $2,119,847
 $2,119,847
Less reinsurance recoverables on unpaid losses and loss adjustment expenses390,708
 343,820
 343,820
Net balance, beginning of year1,955,818
 1,776,027
 1,776,027
Net losses:     
Current year(1)(2)(3)
555,969
 532,020
 765,698
Favorable development of reserves established in prior years, net(34,557) (42,212) (11,783)
Total521,412
 489,808
 753,915
Paid related to:     
Current year(60,449) (69,419) (115,133)
Prior years(400,930) (338,452) (458,991)
Total paid(461,379) (407,871) (574,124)
Net balance, end of period2,015,851
 1,857,964
 1,955,818
Plus reinsurance recoverables on unpaid losses and loss adjustment expenses391,637
 357,811
 390,708
Balance, end of period$2,407,488
 $2,215,775
 $2,346,526

(In thousands)Three Months Ended March 31, 2021Three Months Ended March 31, 2020Year Ended December 31, 2020
Balance, beginning of year$2,417,179 $2,346,526 $2,346,526 
Less reinsurance recoverables on unpaid losses and loss adjustment expenses385,087 390,708 390,708 
Net balance, beginning of year2,032,092 1,955,818 1,955,818 
Net losses:
Current year(1)(2)(3)
154,634 170,874 711,846 
Favorable development of reserves established in prior years, net(4,849)(6,042)(50,399)
Total149,785 164,832 661,447 
Paid related to:
Current year(10,513)(15,876)(83,204)
Prior years(126,534)(163,518)(501,969)
Total paid(137,047)(179,394)(585,173)
Net balance, end of period2,044,830 1,941,256 2,032,092 
Plus reinsurance recoverables on unpaid losses and loss adjustment expenses393,420 389,792 385,087 
Balance, end of period$2,438,250 $2,331,048 $2,417,179 
(1)Current year net losses for the nine months ended September 30, 2019 included incurred losses of $2.1 million related to a loss portfolio transfer entered into during 2019 in the Specialty P&C segment. For additional information regarding the loss portfolio transfer, see Note 4 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2019 Form 10-K.
(2) Current year net losses for the year ended December 31, 20192020 included a PDR of $9.2 million associated with the unearned premiumof amortization of a large national healthcare account's claims-made policy in the Specialty P&C segment. Current year net losses for the nine months ended September 30, 2020 included the amortization of the aforementioned $9.2 million PDR which offsets the impact of the losses incurred associated with the premium earned related to thea large national healthcare account's claims-made policy.policy in the Specialty P&C segment. For additional information regarding the PDR, see Note 7 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 20192020 report on Form 10-K.
(3)(2) During the second quarter of 2020, the aforementioned large national healthcare account did not renew on terms offered by the Company and exercised its contractual option to purchase extended reporting endorsement or "tail" coverage. As a result, ProAssurance recognized total current year losses of $60.0 million (assumes a full limit loss) within the Specialty P&C segment for the nineyear ended December 31, 2020 (see Note 7 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2020 report on Form 10-K).
(3) Current year net losses for the three months ended September 30, 2020.March 31, 2021 included incurred losses of $2.9 million related to an assumed reinsurance arrangement entered into during the first quarter of 2021 in the Specialty P&C segment (see Note 4).
Estimating liability reserves is complex and requires the use of many assumptions. As time passes and ultimate losses for prior years are either known or become subject to a more precise estimation, ProAssurance increases or decreases the reserve estimates established in prior periods. The consolidated net favorable loss development recognized in the three months ended March 31, 2021 primarily reflected a lower than anticipated claims severity trend (i.e., the average size of a claim) in the Specialty P&C segment, primarily related to the 2017 and 2018 accident years. The net favorable development also reflected overall favorable trends in claim closing patterns in the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments. The net favorable loss development recognized in the nineWorkers' Compensation Insurance segment is primarily related to the 2017 accident year and prior. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to the 2018 and 2019 accident years. Consolidated net favorable loss development recognized in the three months ended September 30,March 31, 2021 was partially offset by unfavorable reserve development recognized in the Lloyd's Syndicates segment driven by certain property and catastrophe related losses.
The net favorable loss development recognized during the three months ended March 31, 2020 primarily reflected overall favorable trends in claim closing patterns in the Segregated Portfolio Cell Reinsurance and Workers' Compensation Insurance segments as well as a reduction in the reserve for potential ECO/XPL claims in the Specialty P&C segment. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment primarily related to the 2016 through 2018 accident years and the net favorable loss development recognized in the Workers' Compensation Insurance segment primarily related to the 2015 and 2016 accident years.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2021
The net favorable loss development recognized for the year ended December 31, 2020 primarily reflected a lower than anticipated claims severity trend (i.e., the average size of a claim) in the Specialty P&C segment, primarily related to the 2014 through 20182017 accident years. The net favorable development also reflected overall favorable trends in claim closing patterns in the Segregated Portfolio Cell Reinsurance and Workers' Compensation Insurance segments. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment primarily related to the 20162014 through 20182019 accident years and the net favorable loss development recognized in the Workers' Compensation Insurance segment primarily related to the 20132014 through 20162017 accident years and accident years prior to 2010.
The net favorable loss development recognized in the nine months ended September 30, 2019 primarily reflected a lower than anticipated claims severity trend in the Specialty P&C segment for accident years 2012 through 2015.
The net favorable loss development recognized in the twelve months ended December 31, 2019 primarily reflected overall favorable trends in claim closing patterns in the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments, largely offset by net unfavorable loss development recognized in the Specialty P&C segment. The net favorable loss development recognized in the Workers' Compensation Insurance segment primarily related to the 2015 and 2016 accident years and the net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment primarily related to the 2015 through 2018 accident years. The net unfavorable loss development recognized in the Specialty P&C segment primarily related to accident years 2016 through 2018.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

For additional information regarding ProAssurance's reserve for losses, see Note 1 and Note 8 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 20192020 report on Form 10-K.
7.8. Commitments and Contingencies
ProAssurance is involved in various legal actions related to insurance policies and claims handling including, but not limited to, claims asserted by policyholders. These types of legal actions arise in the Company's ordinary course of business and, in accordance with GAAP for insurance entities, are considered as a part of the Company's loss reserving process, which is described in detail under the heading "Losses and Loss Adjustment Expenses" in the Accounting Policies section in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 20192020 Form 10-K. ProAssurance also has other direct actions against the Company unrelated to its claims activity which are evaluated and accounted for as a part of other liabilities. For these corporate legal actions, the Company evaluates each case separately and establishes what it believes is an appropriate reserve based on GAAP guidance related to contingent liabilities. As of September 30, 2020March 31, 2021 there were no material reserves established for corporate legal actions.
As a member of Lloyd's, ProAssurance has obligations to Syndicate 1729 and Syndicate 6131 including a Syndicate Credit Agreement and FAL requirements. The Syndicate Credit Agreement is an unconditional revolving credit agreement to the Premium Trust Fund of Syndicate 1729 for the purpose of providing working capital with maximum permitted borrowings of £30.0 million (approximately $38.8$41.3 million as of September 30, 2020)March 31, 2021). The Syndicate Credit Agreement has a maturity date of December 31, 2021 and contains an annual auto-renewal feature which allows for ProAssurance to elect to non-renew if notice is given at least 30 days prior to the next auto-renewal date, which is one year prior to the maturity date. Under the Syndicate Credit Agreement, advances bear interest at 3.8% annually and may be repaid at any time but are repayable upon demand after December 31, 2021, subject to extension through the auto-renewal feature. As of September 30, 2020,March 31, 2021, there were no outstanding borrowings under the Syndicate Credit Agreement. ProAssurance provides FAL to support underwriting by Syndicate 1729 and Syndicate 6131 and is comprised of investment securities and cash and cash equivalents deposited with Lloyd's with a total fair value of approximately $105.8$106.8 million at September 30, 2020March 31, 2021 (see Note 3). During the third quarter of 2020, ProAssurance received a return of approximately $32.3 million of cash and cash equivalents from its FAL balances given the Company's reduced participation in the results of Syndicate 1729 for the 2020 underwriting year to 29% from 61%.
ProAssurance has entered into financial instrument transactions that may present off-balance sheet credit risk or market risk. These transactions include a short-term loan commitment and commitments to provide funding to non-public investment entities. Under the short-term loan commitment, ProAssurance has agreed to advance funds on a 30 day basis to a counterparty provided there is no violation of any condition established in the contract. As of September 30, 2020,March 31, 2021, ProAssurance had total funding commitments related to non-public investment entities as well as the short-term loan commitment of approximately $203.8$190.5 million which included the amount at risk if the full short-term loan is extended and the counterparties default. However, the credit risk associated with the short-term loan commitment is minimal as the counterparties to the contract are highly rated commercial institutions and to-date have been performing in accordance with their contractual obligations. ProAssurance’s expected credit losses associated with this short-term loan commitment were nominal in amount as of September 30, 2020.March 31, 2021.
In October 2018, ProAssurance entered into an agreement with a company for a minimum commitment of two years to provide data analytics services for certain product lines within the Company's HCPL book of business. In October 2020, ProAssurance executed an amendment to this agreement which extended the commitment an additional one year for an annual fee of approximately $2.4 million and additional variable quarterly incentive fees based on service utilization metrics prescribed in the contract. In addition, the amended agreement includes an optional three-month extension feature if notice is given at least 30 days prior to the end of the contract. ProAssurance incurred operating expenses associated with this agreement of $1.2 million and $3.6 million during the three and nine months ended September 30, 2020, respectively, and $1.4 million and $3.7 million for the same respective periods of 2019. As of September 30, 2020, the remaining commitment under this agreement was estimated to be approximately $2.5 million, which includes estimated variable quarterly incentive fees.
ProAssurance has entered into a definitive agreement to acquire NORCAL, an underwriter of medical professional liability insurance, subject to the demutualization of NORCAL Mutual, NORCAL's ultimate controlling party. Given the various remaining regulatory approvals required, both companies are targeting to close the transaction in early 2021. Subject to NORCAL’s conversion from a mutual company to a stock company, ProAssurance has agreed to acquire 100% of the converted company stock in exchange for base consideration of $450 million and contingent consideration of up to an additional $150 million depending on the development of NORCAL’s ultimate losses over a three-year period following the acquisition date. The actual final cost of the transaction could vary due to the ability of NORCAL’s policyholders to elect forms of consideration other than stock in the demutualization transaction as provided by California law. Those alternative consideration options are tied to an appraised value of NORCAL as determined by the California insurance regulator rather than the price per

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Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

share ProAssurance has agreed to pay for 100% of NORCAL assuming that all policyholders elect to receive stock. Further, the transaction is subject to a number of closing conditions, including a maximum threshold for one of the alternative forms of consideration in the demutualization, a minimum threshold for the number of NORCAL shares tendered to ProAssurance, and various required regulatory approvals. The Agreement and Plan of Acquisition was previously filed as Exhibit 10.1 to ProAssurance's March 31, 2020 report on Form 10-Q.2021
8.9. Leases
ProAssurance is involved in a number of operating leases primarily for office facilities. Office facility leases have remaining lease terms ranging from one year to twelveeleven years; some of which include options to extend the leases for up to tenfifteen years, and some of which include an option to terminate the lease within one year. ProAssurance subleases certain office facilities to third parties and classifies these leases as operating leases.
The following table provides a summary of the components of net lease expense as well as the reporting location in the Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020.
(In thousands)Location in the Condensed Consolidated Statements of Income and Comprehensive IncomeThree Months Ended September 30 Nine Months Ended September 30(In thousands)Location in the Condensed Consolidated Statements of Income and Comprehensive IncomeThree Months Ended March 31
20202019 2020201920212020
Operating lease expense (1)
Operating expense$905
$1,184
 $3,421
$3,112
Operating lease expense (1)
Operating expense$938 $1,625 
Sublease income (2)
Other income(42)(38) (118)(114)
Sublease income (2)
Other income(54)(38)
Net lease expense $863
$1,146

$3,303
$2,998
Net lease expense$884 $1,587 
(1) Includes short-term lease costs and variable lease costs, if applicable. For the three and nine months ended September 30,March 31, 2021 and 2020, and 2019, no short-term lease costs were recognized and variable lease costs were nominal in amount.
(2) Sublease income excludes rental income from owned properties of $0.7 million and $1.9$0.6 million during each of the three and nine months ended September 30,March 31, 2021 and 2020 and 2019, respectively, which is included in other income. See “Item 2. Properties” in ProAssurance's December 31, 20192020 report on Form 10-K for a listing of currently owned properties.
The following table provides supplemental lease information for operating leases on the Condensed Consolidated Balance SheetSheets as of September 30, 2020March 31, 2021 and December 31, 2019.2020.
($ in thousands)September 30, 2020December 31, 2019($ in thousands)March 31, 2021December 31, 2020
Operating lease ROU assets$18,925
$21,074
Operating lease ROU assets$18,219 $19,013 
Operating lease liabilities$20,194
$22,051
Operating lease liabilities$19,168 $20,116 
Weighted-average remaining lease term8.44 years
8.74 years
Weighted-average remaining lease term8.26 years8.31 years
Weighted-average discount rate3.04%3.08%Weighted-average discount rate2.98 %2.97 %
The following table provides supplemental lease information for the Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2020March 31, 2021 and 2019.2020.
Three Months Ended March 31
(In thousands)20212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$1,089 $1,017 
 Nine Months Ended September 30
(In thousands)20202019
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows from operating leases$292
$735
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Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

The following table is a schedule of remaining future minimum lease payments for operating leases that had an initial or remaining non-cancellable lease term in excess of one year as of September 30, 2020.March 31, 2021.
(In thousands) 
2020$1,092
20214,061
20223,175
20232,473
20241,887
Thereafter10,244
Total future minimum lease payments22,932
Less: Imputed interest2,738
Total operating lease liabilities$20,194

(In thousands)
2021$3,057 
20223,306 
20232,608 
20242,026 
20251,783 
Thereafter8,875 
Total future minimum lease payments21,655 
Less: Imputed interest2,487 
Total operating lease liabilities$19,168 
9.10. Debt
ProAssurance’s outstanding debt consisted of the following:
(In thousands)September 30,
2020		 December 31,
2019
Senior Notes due 2023, unsecured, interest at 5.3% annually$250,000
 $250,000
Mortgage Loans, outstanding borrowings are secured by first priority liens on two office buildings, and bear an interest rate of three-month LIBOR plus 1.325% (1.64% and 3.21%, respectively) determined on a quarterly basis.36,489
 37,617
Total principal286,489
 287,617
Less unamortized debt issuance costs1,499
 1,796
Debt less unamortized debt issuance costs$284,990
 $285,821

($ in thousands)March 31,
2021		December 31,
2020
Senior Notes due 2023, unsecured, interest at 5.3% annually$250,000 $250,000 
Mortgage Loans, outstanding borrowings are secured by first priority liens on two office buildings, and bear an interest rate of three-month LIBOR plus 1.325% (1.51% and 1.58%, respectively) determined on a quarterly basis35,723 36,113 
Total principal285,723 286,113 
Less unamortized debt issuance costs1,301 1,400 
Debt less unamortized debt issuance costs$284,422 $284,713 
Revolving Credit Agreement
ProAssurance has a Revolving Credit Agreement, which expires November 2024, that may be used for general corporate purposes, including, but not limited to, short-term working capital, share repurchases as authorized by the Board and support for other activities. ProAssurance's Revolving Credit Agreement permits borrowings up to $250 million, and has available a $50 million accordion feature which, if successfully subscribed, would expand the permitted borrowings to a maximum of $300 million. As of September 30, 2020March 31, 2021 and December 31, 2019,2020, there were 0 outstanding borrowings on the Revolving Credit Agreement.
Covenant Compliance
There are no financial covenants associated with the Senior Notes due 2023.
The Revolving Credit Agreement contains customary representations, covenants and events constituting default, and remedies for default. The Revolving Credit Agreement also defines financial covenants regarding permitted leverage ratios. ProAssurance is currently in compliance with all covenants of the Revolving Credit Agreement. On April 19, 2021, ProAssurance amended and restated its Revolving Credit Agreement to allow for additional indebtedness of a subsidiary in preparation of the close of the NORCAL acquisition. This amendment to the Revolving Credit Agreement is included as Exhibit 10.1 of this report.
The Mortgage Loans contain customary representations, covenants and events constituting default, and remedies for default. The Mortgage Loans also define a financial covenant regarding a permitted leverage ratio for each of the two ProAssurance subsidiaries that entered into the Mortgage Loans. ProAssurance's subsidiaries are currently in compliance with the financial covenant of the Mortgage Loans.
Additional Information
For additional information regarding ProAssurance's debt, see Note 11 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 20192020 report on Form 10-K.

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Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

10.11. Shareholders’ Equity
At September 30, 2020March 31, 2021 and December 31, 2019,2020, ProAssurance had 100 million shares of authorized common stock and 50 million shares of authorized preferred stock. The Board has the authority to determine provisions for the issuance of preferred shares, including the number of shares to be issued, the designations, powers, preferences and rights, and the qualifications, limitations or restrictions of such shares.
ProAssurance declared cash dividends of $0.05 and $0.31 per share during the first quarter of 2021 and 2020, $0.05 per share during each of the second and third quarters of 2020 and $0.31 per share during each of the first three quarters of 2019.respectively. Dividends declared during the 2021 and 2020 and 2019 nine-monththree-month periods totaled $22.1$2.7 million and $50.0$16.7 million, respectively. Given the Company’s current earnings profile, the effects that underlying conditions in the broader insurance marketplace continue to have on the Company’s results and the uncertainties introduced by the COVID-19 pandemic, the Board made the decision to reduce the quarterly cash dividend from $0.31 per share to $0.05 per share, beginning with the dividend declared during the second quarter of 2020. Any decision to pay future cash dividends is subject to the Board’s final determination after a comprehensive review of financial performance, future expectations and other factors deemed relevant by the Board. See Note 12 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K for additional information.
At September 30, 2020,March 31, 2021, Board authorizations for the repurchase of common shares or the retirement of outstanding debt of $110$110 million remained available for use. ProAssurance did 0t repurchase any common shares during the ninethree months ended September 30, 2020 and 2019.
Share-based compensation expense and related tax benefits were as follows:
 Three Months Ended September 30 Nine Months Ended September 30
(In thousands)2020 2019 2020 2019
Share-based compensation expense$1,020
 $3
 $3,052
 $2,323
Related tax benefits$214
 $1
 $641
 $488

ProAssurance awarded approximately 112,000 restricted share units and 39,000 base performance share units to employees in FebruaryMarch 31, 2021 or 2020. The fair value of each unit awarded was estimated at $29.18, equal to the market value of a ProAssurance common share on the date of grant less the estimated present value of expected dividends during the vesting period. The majority of awards are charged to expense as an increase to additional paid-in capital over the service period (generally the vesting period) associated with the award. However, a nominal amount of awards are recorded as a liability as they are structured to be settled in cash. Restricted share units and performance share units vest in their entirety at the end of a three-year period following the grant date based on a continuous service requirement and, for performance share units, achievement of a performance objective. Partial vesting is permitted for retirees. For equity classified awards, a ProAssurance common share is issued for each unit once vesting requirements are met, except that units sufficient to satisfy required tax withholdings are paid in cash. The number of common shares issued for performance share units varies from 50% to 200% of base awards depending upon the degree to which stated performance objectives are achieved. ProAssurance issued approximately 47,000 common shares to employees in February 2020 related to restricted share units granted in 2017. Liability classified awards, which are nominal in amount, are settled in cash at the end of the vesting period.
Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)
The following tables provide a detailed breakout of the components of AOCI and the amounts reclassified from AOCI to net income (loss). The tax effects of all amounts in the tables below, except for an immaterial amount of unrealized gains and losses on available-for-sale securities held at the Company's U.K. subsidiary, were computed using the enacted U.S. federal corporate tax rate of 21%. For the three and nine months ended September 30,March 31, 2021 and 2020, OCI included a deferred tax expensebenefit of $1.9$8.3 million and $7.7$11.0 million, respectively, as compared to $2.0 million and $15.0 million for the same respective periods of 2019.

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Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

respectively.
The changes in the balance of each component of AOCI for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 were as follows:
(In thousands)Unrealized Investment Gains (Losses) Non-credit Impairments Unrecognized Change in Defined Benefit Plan Liabilities* Accumulated Other Comprehensive Income (Loss)(In thousands)Unrealized Investment Gains (Losses)Non-credit ImpairmentsUnrecognized Change in Defined Benefit Plan Liabilities*Accumulated Other Comprehensive Income (Loss)
Balance July 1, 2020$61,912
 $(704) $(78) $61,130
Balance December 31, 2020Balance December 31, 2020$75,388 $(57)$(104)$75,227 
OCI, before reclassifications, net of tax9,505
 0
 (22) 9,483
OCI, before reclassifications, net of tax(30,415)0 0 (30,415)
Amounts reclassified from AOCI, net of tax(2,975) 647
 0
 (2,328)Amounts reclassified from AOCI, net of tax(3,347)57 0 (3,290)
Net OCI, current period6,530
 647
 (22) 7,155
Net OCI, current period(33,762)57 0 (33,705)
Balance September 30, 2020$68,442
 $(57) $(100) $68,285
Balance March 31, 2021Balance March 31, 2021$41,626 $0 $(104)$41,522 
(In thousands)Unrealized Investment Gains (Losses) Non-credit Impairments Unrecognized Change in Defined Benefit Plan Liabilities* Accumulated Other Comprehensive Income (Loss)
Balance December 31, 2019$37,333
 $(300) $(78) $36,955
OCI, before reclassifications, net of tax37,199
 (187) (22) 36,990
Amounts reclassified from AOCI, net of tax(6,090) 430
 0
 (5,660)
Net OCI, current period31,109
 243
 (22) 31,330
Balance September 30, 2020$68,442
 $(57) $(100) $68,285
(In thousands)Unrealized Investment Gains (Losses) Non-credit Impairments Unrecognized Change in Defined Benefit Plan Liabilities* Accumulated Other Comprehensive Income (Loss)
Balance July 1, 2019$31,988
 $(190) $(69) $31,729
OCI, before reclassifications, net of tax7,834
 (29) (5) 7,800
Amounts reclassified from AOCI, net of tax(395) 0
 0
 (395)
Net OCI, current period7,439
 (29) (5) 7,405
Balance September 30, 2019$39,427
 $(219) $(74) $39,134

(In thousands)Unrealized Investment Gains (Losses) Non-credit Impairments Unrecognized Change in Defined Benefit Plan Liabilities* Accumulated Other Comprehensive Income (Loss)
Balance December 31, 2018$(16,733) $(121) $(57) $(16,911)
OCI, before reclassifications, net of tax57,311
 (98) (17) 57,196
Amounts reclassified from AOCI, net of tax(1,151) 0
 0
 (1,151)
Net OCI, current period56,160
 (98) (17) 56,045
Balance September 30, 2019$39,427
 $(219) $(74) $39,134
* Represents the reestimation of the defined benefit plan liability assumed in the Eastern acquisition. The defined benefit plan is frozen as to the earnings of additional benefits and the benefit plan liability is reestimated annually.


(In thousands)Unrealized Investment Gains (Losses)Non-credit ImpairmentsUnrecognized Change in Defined Benefit Plan Liabilities*Accumulated Other Comprehensive Income (Loss)
Balance December 31, 2019$36,577 $300 $78 $36,955 
OCI, before reclassifications, net of tax(42,497)517 0 (41,980)
Amounts reclassified from AOCI, net of tax115 0 0 115 
Net OCI, current period(42,382)517 0 (41,865)
Balance March 31, 2020$(5,805)$817 $78 $(4,910)
* Represents the re-estimation of the defined benefit plan liability assumed in the Eastern acquisition. The defined benefit plan is frozen as to the earnings of additional benefits and the benefit plan liability is re-estimated annually.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

11.12. Variable Interest Entities
ProAssurance holds passive interests in a number of entities that are considered to be VIEs under GAAP guidance. ProAssurance's VIE interests principally consist of interests in LPs/LLCs formed for the purpose of achieving diversified equity and debt returns. ProAssurance's VIE interests, carried as a part of investment in unconsolidated subsidiaries, totaled $284.2$270.8 million at September 30, 2020March 31, 2021 and $309.0$282.2 million at December 31, 2019.2020.
ProAssurance does not have power over the activities that most significantly impact the economic performance of these VIEs and thus is not the primary beneficiary. Investments in entities where ProAssurance holds a greater than minor interest but does not hold a controlling interest are accounted for using the equity method. Therefore, ProAssurance has not consolidated these VIEs. ProAssurance’s involvement with each VIE is limited to its direct ownership interest in the VIE. Except for the funding commitments disclosed in Note 7,8, ProAssurance has no arrangements with any of the VIEs to provide other financial support to or on behalf of the VIE. At September 30, 2020,March 31, 2021, ProAssurance’s maximum loss exposure relative to these investments was limited to the carrying value of ProAssurance’s investment in the VIE.
12.13. Earnings (Loss) Per Share
Diluted weighted average shares is calculated as basic weighted average shares plus the effect, calculated using the treasury stock method, of assuming that restricted share units and performance share units and purchase match units have vested. The following table provides a reconciliation between the Company's basic weighted average number of common shares outstanding to its diluted weighted average number of common shares outstanding:
(In thousands, except per share data)Three Months Ended
September 30		 Nine Months Ended
September 30
2020 2019 2020 2019
Weighted average number of common shares outstanding, basic53,889
 53,762
 53,854
 53,732
Dilutive effect of securities:       
Restricted Share Units29
 73
 41
 69
Performance Share Units0
 0
 1
 13
Purchase Match Units0
 21
 0
 17
Weighted average number of common shares outstanding, diluted53,918
 53,856
 53,896
 53,831
Effect of dilutive shares on earnings (loss) per share$0
 $0
 $0
 $0

The diluted weighted average number of common shares outstanding for the three and nine months ended September 30, 2020 excludes approximately 177,000 and 119,000, respectively, common share equivalents issuable under the Company's stock compensation plans, as their effect would be antidilutive. There were 0 antidilutive common share equivalents for the three and nine months ended September 30, 2019.
(In thousands, except per share data)Three Months Ended
March 31
20212020
Weighted average number of common shares outstanding, basic53,918 53,808 
Dilutive effect of securities:
Restricted Share Units76 74 
Performance Share Units4 3 
Weighted average number of common shares outstanding, diluted53,998 53,885 
Effect of dilutive shares on earnings (loss) per share$0 $0 
Dilutive common share equivalents are reflected in the earnings (loss) per share calculation while antidilutive common share equivalents are not reflected in the earnings (loss) per share calculation. There were no antidilutive common share equivalents for the three months ended March 31, 2021. For the three and nine months ended September 30,March 31, 2020, all incremental common share equivalents were not included in the computation of diluted earnings (loss) per share because to do so would have been antidilutive.

antidilutive for the period.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

13.14. Segment Information
ProAssurance's segments are based on the Company's internal management reporting structure for which financial results are regularly evaluated by the Company's CODM to determine resource allocation and assess operating performance. The Company continually assesses its internal management reporting structure and information evaluated by its CODM to determine whether any changes have occurred that would impact its segment reporting structure. The Company operates in 5 segments that are organized around the nature of the products and services provided: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, Lloyd's Syndicates and Corporate. A description of each of ProAssurance's 5 operating and reportable segments follows.
Specialty P&C includes professional liability insurance and medical technology liability insurance. Professional liability insurance is primarily comprised of medical professional liability products offered to healthcare providers and institutions. The Company also offers, to a lesser extent, professional liability insurance to attorneys and their firms. Medical technology liability insurance is offered to medical technology and life sciences companies that manufacture or distribute products including entities conducting human clinical trials. In addition, the Company also offers custom alternative risk solutions including loss portfolio transfers, assumed reinsurance and captive cell programs for healthcare professional liability insureds. For the alternative market captive cell programs, the Specialty P&C segment cedes either all or a portion of the premium to certain SPCs in the Company's Segregated Portfolio Cell Reinsurance segment.
Workers' Compensation Insurance includes workers' compensation insurance products which are provided primarily to employers with 1,000 or fewer employees. The segment's products include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policespolicies and alternative market solutions. Alternative market productsprogram premiums include program design, fronting, claims administration, risk management, SPC rental, asset management and SPC management services. Alternative market program premiums are 100% ceded to either SPCs in the Company's Segregated Portfolio Cell Reinsurance segment or, to a limited extent, to a captive insurer unaffiliated with ProAssurance.
Segregated Portfolio Cell Reinsurance reflectsincludes the results (underwriting profit or loss, plus investment results, net of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, the Company's Cayman Islands SPC operations. Each SPC is owned, fully or in part, by an agency, group or association, and the results of the SPCs are dueattributable to the participants of that cell. ProAssurance participates to a varying degree in the results of selected SPCs. SPC results attributable to external cell participants are reflected as SPC dividend expense (income) in the Segregated Portfolio Cell Reinsurance segment and in ProAssurance's Condensed Consolidated Statements of Income and Comprehensive Income. In addition, the Segregated Portfolio Cell Reinsurance segment includes the investment results of the SPCs as the investments are solely for the benefit of the cell participants, and investment results attributable to external cell participants are reflected in the SPC dividend expense (income). The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from the Company's Workers' Compensation Insurance and Specialty P&C segments.
Lloyd's Syndicates includes the results from ProAssurance's participation in Lloyd's of London Syndicate 1729 and its 100% participation in Syndicate 6131. The results of this segment are normally reported on a quarter lag, except when information is available that is material to the current period. Furthermore, investment results associated with the majority of investment assets solely allocated to Lloyd's Syndicate operations and certain U.S. paid administrative expenses are reported concurrently as that information is available on an earlier time frame. ForSyndicate 1729 underwrites risks over a wide range of property and casualty insurance and reinsurance lines in both the 2020 underwriting year,U.S. and international markets while Syndicate 6131 focuses on contingency and specialty property business, also within the U.S. and international markets. To support and grow the Company's core insurance operations, ProAssurance decreased its participation in the results of Syndicate 1729 for the 2021 underwriting year to 29%5% from 61%; however, due to the quarter lag these changes were not reflected in the Company's results until the second quarter of 2020.29%. Syndicate 6131 is an SPA that underwrites on a quota share basis with Syndicate 1729. Effective July 1, 2020, Syndicate 6131 entered into a six-month quota share reinsurance agreement with an unaffiliated insurer. Under this agreement, Syndicate 6131 will cedeceded essentially half of the premium assumed from Syndicate 1729 to the unaffiliated insurer.insurer; the agreement was non-renewed on January 1, 2021 and the Company decreased its participation in the results of Syndicate 6131 to 50% from 100% for the 2021 underwriting year. Due to the quarter lag, the effectchange in the Company's participation in the results of this reinsurance arrangementSyndicates 1729 and 6131 will not be reflected in ourits results until the fourthsecond quarter of 2020. Syndicate 1729 underwrites risks over a wide range of property and casualty insurance and reinsurance lines in both the U.S. and international markets. Syndicate 6131 focuses on contingency and specialty property business, also within the U.S. and international markets.2021.
Corporate includes ProAssurance's investment operations, other than those reported in the Company's Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments, interest expense and U.S. income taxes. The segment also includes non-premium revenues generated outside of the Company's insurance entities and corporate expenses.
The accounting policies of the segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 20192020 report on Form 10-K and Note 1 herein.10-K. ProAssurance evaluates the performance of its Specialty P&C and Workers' Compensation Insurance segments based on before tax underwriting profit or loss. ProAssurance evaluates the performance of its Segregated Portfolio Cell Reinsurance segment based on operating profit or loss, which includes investment
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Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2021
results of investment assets solely allocated to SPC operations, net of U.S. federal income

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Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

taxes. Performance of the Lloyd's Syndicates segment is evaluated based on operating profit or loss, which includes investment results of investment assets solely allocated to Lloyd's Syndicate operations, net of U.K. income tax expense. Performance of the Corporate segment is evaluated based on the contribution made to consolidated after-tax results. ProAssurance accounts for inter-segment transactions as if the transactions were to third parties at current market prices. Assets are not allocated to segments because investments, other than the investments discussed above that are solely allocated to the Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments, and other assets are not managed at the segment level. The tabular information that follows shows the financial results of the Company's reportable segments reconciled to results reflected in the Condensed Consolidated Statements of Income and Comprehensive Income. ProAssurance does not consider asset impairments, including goodwill and intangible asset impairments, in assessing the financial performance of its operating and reportable segments, and thus are included in the reconciliation of segment results to consolidated results.
Financial results by segment were as follows:
 Three Months Ended September 30, 2020
(In thousands)Specialty P&C Workers' Compensation Insurance Segregated Portfolio Cell Reinsurance Lloyd's Syndicates Corporate Inter-segment Eliminations Consolidated
Net premiums earned$117,849
 $42,516
 $16,052
 $18,142
 $0
 $0
 $194,559
Net investment income0
 0
 273
 951
 15,700
 0
 16,924
Equity in earnings (loss) of unconsolidated subsidiaries0
 0
 0
 0
 4,853
 0
 4,853
Net realized gains (losses)0
 0
 1,495
 489
 6,854
 0
 8,838
Other income (expense)(1)
726
 441
 12
 411
 775
 (642) 1,723
Net losses and loss adjustment expenses(102,951) (26,455) (6,858) (9,317) 0
 0
 (145,581)
Underwriting, policy acquisition and operating expenses(1)
(28,074) (14,983) (5,036) (6,938) (5,044) 642
 (59,433)
SPC U.S. federal income tax expense(2)
0
 0
 (871) 0
 0
 0
 (871)
SPC dividend (expense) income0
 0
 (3,854) 0
 0
 0
 (3,854)
Interest expense0
 0
 0
 0
 (3,881) 0
 (3,881)
Income tax benefit (expense)0
 0
 0
 0
 (2,141) 0
 (2,141)
Segment results$(12,450)
$1,519

$1,213

$3,738

$17,116

$0

$11,136
 

            
Reconciliation of segments to consolidated results:          
Goodwill impairment            (161,115)
Net income (loss)            $(149,979)
              
Significant non-cash items:             
Goodwill impairment$0

$0

$0

$0

$0

$0

$161,115
Depreciation and amortization, net of accretion$2,669
 $923
 $210
 $3
 $2,540
 $0
 $6,345

Three Months Ended March 31, 2021
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell ReinsuranceLloyd's SyndicatesCorporateInter-segment EliminationsConsolidated
Net premiums earned$115,613 $40,011 $15,884 $15,850 $0 $0 $187,358 
Net investment income0 0 221 729 14,067 0 15,017 
Equity in earnings (loss) of unconsolidated subsidiaries0 0 0 0 6,788 0 6,788 
Net realized gains (losses)0 0 987 (115)7,977 0 8,849 
Other income (expense)(1)
469 392 1 221 1,894 (972)2,005 
Net losses and loss adjustment expenses(101,186)(26,207)(9,425)(12,967)0 0 (149,785)
Underwriting, policy acquisition and operating expenses(1)
(26,346)(12,286)(5,025)(6,591)(7,175)972 (56,451)
SPC U.S. federal income tax expense(2)
0 0 (356)0 0 0 (356)
SPC dividend (expense) income0 0 (1,742)0 0 0 (1,742)
Interest expense0 0 0 0 (3,212)0 (3,212)
Income tax benefit (expense)0 0 0 0 (736)0 (736)
Segment results$(11,450)$1,910 $545 $(2,873)$19,603 $0 7,735 
Net income (loss)$7,735 
Significant non-cash items:
Depreciation and amortization, net of accretion$2,171 $903 $316 $15 $3,317 $0 $6,722 
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Three Months Ended March 31, 2020
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell ReinsuranceLloyd's SyndicatesCorporateInter-segment EliminationsConsolidated
Net premiums earned$120,359 $44,515 $16,980 $22,001 $0 $0 $203,855 
Net investment income0 0 254 1,159 19,417 0 20,830 
Equity in earnings (loss) of unconsolidated subsidiaries0 0 0 0 (1,562)0 (1,562)
Net realized gains (losses)0 0 (3,207)81 (25,547)0 (28,673)
Other income (expense)(1)
1,698 757 136 (232)633 (741)2,251 
Net losses and loss adjustment expenses(110,931)(29,769)(9,352)(14,780)0 0 (164,832)
Underwriting, policy acquisition and operating expenses(1)
(29,585)(14,164)(5,079)(9,142)(4,827)741 (62,056)
SPC U.S. federal income tax expense(2)
0 0 (222)0 0 0 (222)
SPC dividend (expense) income0 0 508 0 0 0 508 
Interest expense0 0 0 0 (4,129)0 (4,129)
Income tax benefit (expense)0 0 0 29 12,047 0 12,076 
Segment results$(18,459)$1,339 $18 $(884)$(3,968)$0 (21,954)
Net income (loss)$(21,954)
Significant non-cash items:
Depreciation and amortization, net of accretion$1,580 $926 $69 $9 $2,150 $0 $4,734 
(1) Certain fees for services provided to the SPCs at Inova Re and Eastern Re are recorded as expenses within the Segregated Portfolio Cell Reinsurance segment and as other income within the Workers' Compensation Insurance segment. These fees are primarily SPC rental fees and are eliminated between segments in consolidation.
(2) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
 Nine Months Ended September 30, 2020
(In thousands)Specialty P&C Workers' Compensation Insurance Segregated Portfolio Cell Reinsurance Lloyd's Syndicates Corporate Inter-segment Eliminations Consolidated
Net premiums earned$365,305
 $129,437
 $49,780
 $61,186
 $0
 $0
 $605,708
Net investment income0
 0
 832
 3,236
 51,809
 0
 55,877
Equity in earnings (loss) of unconsolidated subsidiaries0
 0
 0
 0
 (22,065) 0
 (22,065)
Net realized gains (losses)0
 0
 894
 1,100
 (1,844) 0
 150
Other income (expense)(1)
3,515
 1,717
 203
 219
 1,813
 (1,799) 5,668
Net losses and loss adjustment expenses(373,442) (84,648) (23,890) (39,432) 0
 0
 (521,412)
Underwriting, policy acquisition and operating expenses(1)
(82,894) (42,604) (15,474) (23,373) (17,632) 1,799
 (180,178)
SPC U.S. federal income tax expense(2)
0
 0
 (1,573) 0
 0
 0
 (1,573)
SPC dividend (expense) income0
 0
 (7,988) 0
 0
 0
 (7,988)
Interest expense0
 0
 0
 0
 (11,725) 0
 (11,725)
Income tax benefit (expense)0
 0
 0
 29
 48,592
 0
 48,621
Segment results$(87,516) $3,902
 $2,784
 $2,965
 $48,948
 $0
 $(28,917)
              
Reconciliation of segments to consolidated results:          
Goodwill impairment            (161,115)
Net income (loss)            $(190,032)
              
Significant non-cash items:             
Goodwill impairment$0

$0

$0

$0

$0

$0

$161,115
Depreciation and amortization, net of accretion$5,930
 $2,771
 $371
 $26
 $7,070
 $0
 $16,168
 Three Months Ended September 30, 2019
(In thousands)Specialty P&C Workers' Compensation Insurance Segregated Portfolio Cell Reinsurance Lloyd's Syndicates Corporate Inter-segment Eliminations Consolidated
Net premiums earned$125,237
 $49,477
 $19,779
 $21,295
 $0
 $0
 $215,788
Net investment income0
 0
 445
 1,077
 22,159
 0
 23,681
Equity in earnings (loss) of unconsolidated subsidiaries0
 0
 0
 0
 (1,277) 0
 (1,277)
Net realized gains (losses)0
 0
 (98) 285
 947
 0
 1,134
Other income (expense)(1)
1,858
 494
 176
 (165) 963
 (778) 2,548
Net losses and loss adjustment expenses(107,573) (32,356) (9,778) (11,907) 0
 0
 (161,614)
Underwriting, policy acquisition and operating expenses(1)
(29,700) (14,895) (5,951) (9,411) (2,682) 778
 (61,861)
SPC U.S. federal income tax expense(2)
0
 0
 0
 0
 0
 0
 0
SPC dividend (expense) income0
 0
 (3,621) 0
 0
 0
 (3,621)
Interest expense0
 0
 0
 0
 (4,274) 0
 (4,274)
Income tax benefit (expense)0
 0
 0
 161
 6,528
 0
 6,689
Segment results$(10,178) $2,720
 $952
 $1,335
 $22,364
 $0
 $17,193
              
Net income (loss)            $17,193
              
Significant non-cash items:             
Depreciation and amortization, net of accretion$1,568
 $957
 $(59) $(1) $1,955
 $0
 $4,420


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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020March 31, 2021

 Nine Months Ended September 30, 2019
(In thousands)Specialty P&C Workers' Compensation Insurance Segregated Portfolio Cell Reinsurance Lloyd's Syndicates Corporate Inter-segment Eliminations Consolidated
Net premiums earned$375,315
 $141,990
 $58,566
 $57,215
 $0
 $0
 $633,086
Net investment income0
 0
 1,261
 3,282
 65,495
 0
 70,038
Equity in earnings (loss) of unconsolidated subsidiaries0
 0
 0
 0
 (7,240) 0
 (7,240)
Net realized gains (losses)0
 0
 1,949
 725
 44,390
 0
 47,064
Other income (expense)(1)
4,536
 1,948
 397
 (278) 2,701
 (1,885) 7,419
Net losses and loss adjustment expenses(321,248) (93,424) (40,496) (34,640) 0
 0
 (489,808)
Underwriting, policy acquisition and operating expenses(1)
(89,177) (43,456) (17,091) (25,445) (12,676) 1,885
 (185,960)
SPC U.S. federal income tax expense(2)
0
 0
 0
 0
 0
 0
 0
SPC dividend (expense) income0
 0
 (1,375) 0
 0
 0
 (1,375)
Interest expense0
 0
 0
 0
 (12,850) 0
 (12,850)
Income tax benefit (expense)0
 0
 0
 161
 (157) 0
 4
Segment results$(30,574) $7,058
 $3,211
 $1,020
 $79,663
 $0
 $60,378
              
Net income (loss)            $60,378
              
Significant non-cash items:             
Depreciation and amortization, net of accretion$4,927
 $2,893
 $(45) $(8) $6,306
 $0
 $14,073
(1) Certain fees for services provided to the SPCs at Inova Re and Eastern Re are recorded as expenses within the Segregated Portfolio Cell Reinsurance segment and as other income within the Workers' Compensation Insurance segment. These fees are primarily SPC rental fees and are eliminated between segments in consolidation.
(2) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.



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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020

The following table provides detailed information regarding ProAssurance's gross premiums earned by product as well as a reconciliation to net premiums earned. All gross premiums earned are from external customers except as noted. ProAssurance's insured risks are primarily within the U.S.
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
(In thousands)2020 2019 2020 2019(In thousands)20212020
Specialty P&C Segment       Specialty P&C Segment
Gross premiums earned:       Gross premiums earned:
HCPL$101,785
 $109,484
 $317,088
 $325,245
HCPL$97,045 $103,467 
Small Business Unit26,372
 27,920
 77,937
 82,341
Small Business Unit25,925 26,650 
Medical Technology Liability8,749
 8,519
 25,918
 25,177
Medical Technology Liability8,938 8,529 
Other138
 591
 671
 1,936
Other152 377 
Ceded premiums earned(19,195) (21,277) (56,309) (59,384)Ceded premiums earned(16,447)(18,664)
Segment net premiums earned117,849
 125,237
 365,305
 375,315
Segment net premiums earned115,613 120,359 
       
Workers' Compensation Insurance Segment       Workers' Compensation Insurance Segment
Gross premiums earned:       Gross premiums earned:
Traditional business45,620
 53,156
 138,628
 152,477
Traditional business41,743 47,485 
Alternative market business17,187
 21,247
 53,221
 63,084
Alternative market business16,889 18,128 
Ceded premiums earned(20,291) (24,926) (62,412) (73,571)Ceded premiums earned(18,621)(21,098)
Segment net premiums earned42,516
 49,477
 129,437
 141,990
Segment net premiums earned40,011 44,515 
       
Segregated Portfolio Cell Reinsurance Segment       Segregated Portfolio Cell Reinsurance Segment
Gross premiums earned:       Gross premiums earned:
Workers' compensation(1)
16,476
 20,579
 51,178
 61,305
Workers' compensation(1)
16,115 17,513 
HCPL(2)
1,699
 1,399
 5,099
 4,071
HCPL(2)
1,852 1,677 
Other0
 240
 0
 480
Ceded premiums earned(2,123) (2,439) (6,497) (7,290)Ceded premiums earned(2,083)(2,210)
Segment net premiums earned16,052
 19,779
 49,780
 58,566
Segment net premiums earned15,884 16,980 
       
Lloyd's Syndicates Segment       Lloyd's Syndicates Segment
Gross premiums earned:       Gross premiums earned:
Property and casualty(3)
22,777
 26,399
 77,309
 72,225
20,385 28,196 
Ceded premiums earned(4,635) (5,104) (16,123) (15,010)Ceded premiums earned(4,535)(6,195)
Segment net premiums earned18,142
 21,295
 61,186
 57,215
Segment net premiums earned15,850 22,001 

 
 
 
Consolidated net premiums earned$194,559
 $215,788
 $605,708
 $633,086
Consolidated net premiums earned$187,358 $203,855 
(1) Premium for all periods is assumed from the Workers' Compensation Insurance segment.
(2) Premium for all periods is assumed from the Specialty P&C segment.
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(3)Table of Contents Includes
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2021
15. Subsequent Event
On May 5, 2021, ProAssurance completed its acquisition of NORCAL by purchasing over 98% of the converted company stock in exchange for base consideration of $441 million, which includes cash from ProAssurance of $248 million. The cash consideration from ProAssurance was funded by cash on hand as of May 5, 2021. On May 6, 2021, ProAssurance borrowed $15 million under its Revolving Credit Agreement to pay certain transaction-related expenses (see Note 10 of the Notes to Condensed Consolidated Financial Statements for further discussion of the terms of the Revolving Credit Agreement). The consideration also includes contribution certificates as well as contingent consideration depending upon the development of NORCAL's ultimate net losses over a nominal amountthree-year period beginning December 31, 2020. The contribution certificates will be issued to certain NORCAL policyholders in the conversion of premiumNORCAL Mutual, and those instruments are an obligation of NORCAL Insurance Company, the successor of NORCAL. The base consideration and maximum contingent consideration are subject to final verification as the equity allocation is reviewed and finalized post close.
The determination of the fair value of the contingent consideration, along with the allocation of the final purchase consideration to the assets acquired and liabilities assumed fromwas not complete as of the Specialty P&C segment fordate of this report. The required disclosures related to this acquisition will be provided in ProAssurance's June 30, 2021 report on Form 10-Q upon completion of the nine months ended September 30, 2019.valuation of the assets acquired and liabilities assumed.
NORCAL is an underwriter of medical professional liability insurance and this transaction will provide strategic and financial benefits including additional scale and geographic diversification in the physician professional liability market and is expected to be accretive to earnings over time.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes to those statements which accompany this report. Throughout the discussion we use certain terms and abbreviations, which can be found in the Glossary of Terms and Acronyms at the beginning of this report. In addition, a glossary of insurance terms and phrases is available on the investor section of our website. Throughout the discussion, references to "ProAssurance," "PRA," "Company," "we," "us" and "our" refer to ProAssurance Corporation and its consolidated subsidiaries. The discussion contains certain forward-looking information that involves significant risks, assumptions and uncertainties. As discussed under the heading "Caution Regarding Forward-Looking Statements," our actual financial condition and results of operations could differ significantly from these forward-looking statements.
ProAssurance Overview
ProAssurance Corporation is a holding company for property and casualty insurance companies. Our wholly owned insurance subsidiaries provide professional liability insurance, liability insurance for medical technology and life sciences risks and workers' compensation insurance. We also provide capital to Syndicate 1729 and are the sole (100%) capital provider for Syndicate 6131 at Lloyd's of London.
We operate in five segments which are based on our internal management reporting structure for which financial results are regularly evaluated by our CODM to determine resource allocation and assess operating performance. Descriptions of ProAssurance's five operating and reportable segments are as follows:
•
•Specialty P&C - This segment includes our professional liability business and medical technology liability business. Our professional liability insurance is primarily comprised of medical professional liability products offered to healthcare providers and institutions. We also offer, to a lesser extent, professional liability insurance to attorneys and their firms. Medical technology liability insurance is offered to medical technology and life sciences companies that manufacture or distribute products including entities conducting human clinical trials. We also offer custom alternative risk solutions including loss portfolio transfers, assumed reinsurance and captive cell programs for healthcare professional liability insureds. For our alternative market captive cell programs, we cede either all or a portion of the premium to certain SPCs in our Segregated Portfolio Cell Reinsurance segment.
•Workers' Compensation Insurance - This segment includes our workers' compensation insurance business which is provided primarily to employers with 1,000 or fewer employees. Our workers' compensation products include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market solutions. Alternative market program premiums are 100% ceded to either SPCs in our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer.
•Segregated Portfolio Cell Reinsurance - This segment includes the results (underwriting profit or loss, plus investment results, net of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, our Cayman Islands SPC operations. Each SPC is owned, fully or in part, by an agency, group or association, and the results of the SPCs are attributable to the participants of that cell. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC results attributable to external cell participants are reflected as an SPC dividend expense (income) in our Segregated Portfolio Cell Reinsurance segment. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from our Workers' Compensation Insurance and Specialty P&C segments.
•Lloyd's Syndicates - This segment includes the results from our participation in Lloyd's of London Syndicate 1729 and Syndicate 6131. The results of this segment are normally reported on a quarter lag, except when information is available that is material to the current period. Syndicate 1729 underwrites risks over a wide range of property and casualty insurance and reinsurance lines in both the U.S. and international markets while Syndicate 6131 focuses on contingency and specialty property business, also within the U.S. and international markets. To support and grow our core insurance operations, we decreased our participation in the results of Syndicate 1729 for the 2021 underwriting year to 5% from 29%. Syndicate 6131 is an SPA that underwrites on a quota share basis with Syndicate 1729. Effective July 1, 2020, Syndicate 6131 entered into a six-month quota share reinsurance agreement with an unaffiliated insurer. Under this agreement, Syndicate 6131 ceded essentially half of the premium assumed from Syndicate 1729 to the unaffiliated insurer; the agreement was non-renewed on January 1, 2021 and we decreased our participation in the results of Syndicate 6131 to 50% from 100% for the 2021 underwriting year. Due to the quarter lag, the change in our participation in the results of Syndicates 1729 and 6131 will not be reflected in our results until the second quarter of 2021.
44
• - This segment includes our professional liability business and medical technology liability business. Our professional liability insurance is primarily comprised of medical professional liability products offered to healthcare providers and institutions. We also offer, to a lesser extent, professional liability insurance to attorneys and their firms. Medical technology liability insurance is offered to medical technology and life sciences companies that manufacture or distribute products including entities conducting human clinical trials. We also offer custom alternative risk solutions including loss portfolio transfers, assumed reinsurance and captive cell programs for healthcare professional liability insureds. For our alternative market captive cell programs, we cede either all or a portion of the premium to certain SPCs in our Segregated Portfolio Cell Reinsurance segment.
•
Workers' Compensation Insurance - This segment includes our workers' compensation insurance business which is provided primarily to employers with 1,000 or fewer employees. Our workers' compensation products include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market solutions. Alternative market program premiums are 100% ceded to either SPCs in our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer.
•
Segregated Portfolio Cell Reinsurance - This segment includes the results (underwriting profit or loss, plus investment results, net of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, our Cayman Islands SPC operations. Each SPC is owned, fully or in part, by an agency, group or association, and the results of the SPCs are attributable to the participants of that cell. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC results attributable to external cell participants are reflected as an SPC dividend expense (income) in our Segregated Portfolio Cell Reinsurance segment. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from our Workers' Compensation Insurance and Specialty P&C segments.
•
Lloyd'sSyndicates - This segment includes the results from our participation in Lloyd's of London Syndicate 1729 and Syndicate 6131. The results of this segment are normally reported on a quarter lag, except when information is available that is material to the current period. To reduce our exposure and the associated earnings volatility, we decreased our participation in the results of Syndicate 1729 for the 2020 underwriting year to 29% from 61%; however, due to the quarter lag, these changes were not reflected in our results until the second quarter of 2020. Syndicate 6131 is an SPA that underwrites on a quota share basis with Syndicate 1729. Effective July 1, 2020, Syndicate 6131 entered into a quota share reinsurance agreement with an unaffiliated insurer. Under this agreement, Syndicate 6131 will cede essentially half of the premium assumed from Syndicate 1729 to the unaffiliated insurer. Due to the quarter lag, the effect of this reinsurance arrangement will not be reflected in our results until the fourth quarter of 2020. Syndicate 1729 underwrites risks over a wide range of property and casualty insurance and reinsurance lines in both the U.S. and international markets while Syndicate 6131 focuses on contingency and specialty property business, also within the U.S. and international markets.

•
Corporate - This segment includes our investment operations, other than those reported in our Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments, interest expense and U.S. income taxes. This segment also includes non-premium revenues generated outside of our insurance entities and corporate expenses.
Additional information regarding our segments is included in Note 1314 of the Notes to Condensed Consolidated Financial Statements and in the Segment Results sections that follow.
Regulatory Environment
The primary regulations and legislations that impact or could have a potential impact on our Company are described in "Item 1, Insurance Regulatory Matters" in our December 31, 2019 report on Form 10-K. Other than as described below, there have been no material changes to the "Insurance Regulatory Matters" section in Part 1, Item 1 of ProAssurance's December 31, 2019 report on Form 10-K.

COVID-19
In response to COVID-19, the federal government and a number of states have introduced or adopted legislation to address issues related to the pandemic. The PREP Act was amended on March 27, 2020 to extend liability immunity for activities related to medical countermeasures against COVID-19, except for claims involving "willful misconduct" as defined in the PREP Act. Certain states have enacted legislation changes designed to effectively expand workers’ compensation coverage by establishing a presumption of compensability for certain types of workers. Other states are considering similar measures. Depending on the number of states that institute such changes and the terms of the changes, as well as the impact of the amendment to the PREP Act and any related legal challenges, we may experience increases in claims frequency and severity for our healthcare professional liability and workers’ compensation books of business, which could have an effect on our financial condition, results of operations and cash flows.
Furthermore, we are closely monitoring the impact of potential legislation or court decisions that could retroactively require insurers to extend certain insurance to cover COVID-19 claims, even if the original contract excluded the cover of communicable diseases as is typical in certain policies; however, to date, legislative attempts have been unsuccessful. If successful, these actions could result in an increase in claim frequency and severity due to an unintended increase in exposure for Syndicate 1729 and 6131 which could have an effect on our financial condition, results of operations and cash flows given our participation in those Syndicates.
Critical Accounting Estimates
Our Condensed Consolidated Financial Statements are prepared in conformity with GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the amounts we report on those statements. We evaluate these estimates and assumptions on an ongoing basis based on current and historical developments, market conditions, industry trends and other information that we believe to be reasonable under the circumstances.circumstances, including the potential impacts of the COVID-19 pandemic (see "Item 1A, Risk Factors" and "Critical Accounting Estimates" in our December 31, 2020 report on Form 10-K for additional information). We can make no assurance that actual results will conform to our estimates and assumptions; reported results of operations may be materially affected by changes in these estimates and assumptions.
As a result ofFor further information on the COVID-19 pandemic,significant accounting policies we are reevaluating certain of thesefollow in making estimates and assumptions which could result in material changes to our results of operations including, but not limited to, higher losses and loss adjustment expenses, lower premium volume, asset impairment charges, declines in investment valuations, reductions in audit premium estimates, deferred tax valuation allowances and increases in the allowance for expected credit losses related to available-for-sale securities, premiums receivable and reinsurance receivables. The extent to which the COVID-19 pandemic impacts our business, results of operations andthat materially affect financial condition will depend on future developments, which are highly uncertain and cannot be predicted. These factors include, but are not limitedreporting please refer to the duration, spread, severity, reemergence or mutation of the COVID-19 pandemic, development and wide-scale distribution of medicines or vaccines that effectively treat the virus, the effects of the COVID-19 pandemicNotes to Consolidated Financial Statements in our December 31, 2020 report on our insureds, the loss environment, the healthcare industry, the labor market and Lloyd's, the actions and stimulus measures taken by governments and governmental agencies, and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may experience an impact to our business as a result of any economic recession that has occurred or may occur in the future. Please see "Item 1A, Risk Factors" included in this report for additional information.
Form 10-K. Management considers the following accounting estimates to be critical because they involve significant judgment by management and those judgments could result in a material effect on our financial statements.

Reserve for Losses and Loss Adjustment Expenses
The largest component of our liabilities is our reserve for losses and loss adjustment expenses ("reserve for losses" or "reserve"), and the largest component of expense for our operations is incurred losses and loss adjustment expenses (also referred to as “losses and loss adjustment expenses,” “incurred losses,” “losses incurred” and “losses”). Incurred losses reported in any period reflect our estimate of losses incurred related to the premiums earned in that period as well as any changes to our previous estimate of the reserve required for prior periods.
As of September 30, 2020,March 31, 2021, our reserve is comprised almost entirely of long-tail exposures. The estimation of long-tailed losses is inherently difficult and is subject to significant judgment on the part of management. Due to the nature of our claims, our loss costs, even for claims with similar characteristics, can vary significantly depending upon many factors, including but not limited to the specific characteristics of the claim and the manner in which the claim is resolved. Long-tailed insurance is characterized by the extended period of time typically required both to assess the viability of a claim and potential damages, if any, and to reach a resolution of the claim. The claims resolution process may extend to more than five years. The combination of continually changing conditions and the extended time required for claim resolution results in a loss cost estimation process that requires actuarial skill and the application of significant judgment, and such estimates require periodic modification.
Our reserve is established by management after taking into consideration a variety of factors including premium rates, claims frequency and severity, historical paid and incurred loss development trends and our evaluation of the current loss environment including frequency, severity, the expected effect of inflation, general economic and social trends, and the legal and political environment andenvironment. We also take into consideration the conclusions reached by our internal and consulting actuaries. We update and review the data underlying the estimation of our reserve for losses each reporting period and make adjustments to loss estimation assumptions that we believe best reflect emerging data. Both our internal and consulting actuaries perform an in-depth review of our reserve for losses on at least a semi-annual basis using the loss and exposure data of our insurance subsidiaries.
Our reserving process can be broadly grouped into three areas: the establishment of the reserve for the current accident year (the initial reserve), the re-estimation of the reserve for prior accident years (development of prior accident years) and the establishment of the initial reserve for risks assumed in business combinations, applicable only in periods in which acquisitions occur (the acquired reserve).
Current Accident Year - Initial Reserve
Considerable judgment is required in establishing our initial reserve for any current accident year period, as there is limited data available upon which to base our estimate.estimate (see further discussion that follows under heading "Use of Judgment"). Our process for setting an initial reserve considers the unique characteristics of each product, but in general we rely heavily on the loss assumptions that were used to price business, as our pricing reflects our analysis of loss costs that we expect to incur relative to the insurance product being priced.
Specialty P&C Segment. Loss costs within this segment are impacted by many factors including but not limited to the nature of the claim, including whether or not the claim is an individual or a mass tort claim, the personal situation of the claimant or the claimant's family, the outcome of jury trials, the legislative and judicial climate where any potential litigation may occur, general economic and social trends and, for claims involving bodily injury, the trend of healthcare costs. Within our
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Specialty P&C segment, for our professional liability business (79%(80% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2019;2020; predominately comprised of our HCPL products), we set an initial reserve based upon our evaluation of the current loss environment including frequency, severity, economic inflation, social inflation and legal trends.
The current accident year net loss ratio in the Specialty P&C segment has ranged from 87% to 106% in recent years, excluding the effect of a large national healthcare account. We recorded a higher than average current accident year net loss ratio in 2019 due to increased reserve estimates related to this large national healthcare account that exceeded the assumptions we made when originally underwriting the account. During the second quarter of 2020, the policy term associated with this account's claims-made coverage expired. This account did not renew on terms offered by us and the insured exercised its contractual option to purchase the extended reporting endorsement or "tail" coverage resulting in a net underwriting loss of $45.7 million recognized in the second quarter of 2020 associated with this policy, which increased our current accident year net loss ratio for the nine months ended September 30, 2020. Excluding the impact of this large national healthcare account, we have trended towards the middle of the aforementioned current accident year net loss ratio range. This reflects loss severity in the broader medical professional liability industry and a higher loss pick in our Specialty line of business. In addition, this range also reflects the impact of a $10 million reserve established during the second quarter of 2020 related to COVID-19. This reserve represents our best estimate of ultimate COVID-19 related losses based on currently available information and reported incidents; no adjustment was made to this reserve during the three months ended September 30, 2020. While we have established a reserve for COVID-19 related losses, we have also observed a reduction in claims frequency as compared to 2019,in 2020 that has continued into 2021, some of which is likely associated with the COVID-19 pandemic; however, we have remainedcontinue to remain cautious in recognizing these favorable frequency trends in our current accident year reserve due to the possibilitylong-tailed nature of delays in reporting and our HCPL claims as well as the uncertainty surrounding

the length and severity of the pandemic. pandemic. See further discussion in our Segment Results - Specialty Property & Casualty section that follows under the heading "Losses."Losses and Loss Adjustment Expenses."
The risks insured in our medical technology liabilityMedical Technology Liability business (3% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2019)2020) are more varied, and policies are individually priced based on the risk characteristics of the policy and the account. The insured risks range from startup operations to large multinational entities, and the larger entities often have significant deductibles or self-insured retentions. Reserves are established using our most recently developed actuarial estimates of losses expected to be incurred based on factors which include results from prior analysis of similar business, industry indications, observed trends and judgment. Claims in this line of business primarily involve bodily injury to individuals and are affected by factors similar to those of our HCPL line of business. For the medical technology liabilityMedical Technology Liability business, we also establish an initial reserve using a loss ratio approach, including a provision in consideration of historical loss volatility that this line of business has exhibited.
Workers' Compensation Insurance Segment. Many factors affect the ultimate losses incurred for our workers' compensation coverages (10%(8% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2019)2020) including but not limited to the type and severity of the injury, the age, health and occupation of the injured worker, the estimated length of disability, medical treatment and related costs, and the jurisdiction and workers' compensation laws of the state of the injury occurrence.
We use various actuarial methodologies in developing our workers’ compensation reserve, combined with a review of the payroll exposure base. For the current accident year, given the lack of seasoned information, the different actuarial methodologies produce results with significant variability; therefore, more emphasis is placed on supplementing results from the actuarial methodologies with trends in exposure base, medical expense inflation, general inflation, severity, and claim counts, among other things, to select an expected loss ratio.
Similar toAs in our Specialty P&C segment, we have also observed a reduction in claims frequency in 2020 that has continued into 2021 in our Workers' Compensation Insurance segment, some of which is likely associated with the COVID-19 pandemic. During the third quarter of 2020,While we reduced our current accident year net loss ratio in 2020 in our Workers' Compensation Insurance segment in response to the continuation ofthese favorable trends as these claims are shorter-tailed in 2020, including lowernature as compared to our HCPL claims, frequency and severity; however, we continue to remain cautious in our evaluation of the current accident year reserve due to the uncertainty surrounding the length and severity of the pandemic, andpandemic. Furthermore, the impact of legislative and regulatory bodies in certain states changing or attempting to broaden compensability requirements for COVID-19 claims. If these legislative and regulatory bodies areclaims could, if successful, it could result inhave an increase in claimsadverse impact on the frequency and severity forrelated to COVID-19 claims. See further discussion in the current accident year. See previous discussion under the heading "Regulatory Environment.""Insurance Regulatory Matters" section in Part 1, Item 1 of our December 31, 2020 report on Form 10-K. Furthermore, as it relates to both our Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments, the current economic conditions resulting from the COVID-19 pandemic have introduced significant risk of a prolonged recession, which could have an adverse impact on our return to wellness efforts and the ability of injured workers to return to work, resulting in a potential reduction in favorable claim trends in future periods.
Segregated Portfolio Cell Reinsurance Segment. The factors that affect the ultimate losses incurred for the workers' compensation and HCPL coverages assumed by the SPCs at Inova Re and Eastern Re (4% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2019)2020) are consistent with that of our Workers’ Compensation Insurance and Specialty P&C segments, respectively.
Lloyd's Syndicates Segment. Initial reserves for Syndicate 1729 and Syndicate 6131 are primarily recorded using the loss assumptions by risk category incorporated into each Syndicate's business plan submitted to Lloyd's with consideration given to loss experience incurred to date (4%(5% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2019)2020). The assumptions used in each business plan are consistent with loss results reflected in Lloyd's historical data for similar risks. The loss ratios may also fluctuate due to the mix of earned premium from different open underwriting years to which we participate in to varying degrees, as well as the timing of earned premium adjustments. Such adjustments may be the result of premiums for certain policies and assumed reinsurance contracts being reported subsequent to the coverage period and may be subject to adjustment based on loss experience. Premium and exposure for some of Syndicate 1729's insurance policies and reinsurance contracts are initially estimated and subsequently recorded over an extended period of time as reports are received under delegated underwriting authority programs. When reports are received, the premium, exposure and corresponding loss estimates are revised accordingly. Changes in loss estimates due to premium or exposure fluctuations are incurred in the accident year in which the premium is earned.
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For significant property catastrophe exposures, Syndicate 1729 uses third-party catastrophe models to accumulate a listing of potentially affected policies. Each identified policy is given an estimate of loss severity based upon a combination of factors including the probable maximum loss of each policy, market share analytics, underwriting judgment, client/broker estimates and historical loss trends for similar events. These models are inherently uncertain, reliant upon key assumptions and management judgment and are not always a representation of actual events and ensuing potential loss exposure. Determination of actual losses may take an extended period of time until claims are reported and resolved, including coverage litigation.

Development of Prior Accident Years
In addition to setting the initial reserve for the current accident year, each period we reassess the amount of reserve required for prior accident years.
Our reserve re-estimation process is based upon the most recently completed actuarial analysis supplemented by any new analysis, information or trends that have emerged since the date of that study. We also take into account currently available industry trend information. Changes to previously established reserve estimates are recognized in the current period if management’s best estimate of ultimate losses differs from the estimate previously established. While management considers a variety of variables in determining its best estimate, in general, as claims age, our methodologies give more weight to actual loss costs which, for the majority of our reserves, continue to indicate that ultimate loss costs will be lower than our previous estimates. The discussion in our Critical Accounting Estimates section in Item 7 of our December 31, 20192020 report on Form 10-K includes additional information regarding the methodologies used to evaluate our reserve.
Any change in our estimate of net ultimate losses for prior accident years is reflected in net income (loss) in the period in which such changes are made. In recent years such changes have reduced our estimate of consolidated net ultimate losses, resulting in a reduction of reported losses for the period and a corresponding increase in pre-tax income.
Due to the size of our consolidated reserve for losses and the large number of claims outstanding at any point in time, even a small percentage adjustment to our total reserve estimate could have a material effect on our results of operations for the period in which the adjustment is made. Please refer to the Executive Summary of Operations and Segment Results sections that follow for a discussion on consolidated and segment prior accident year loss development recognized in the current period.
Use of Judgment
The process of estimating reserves involves a high degree of judgment and is subject to a number of variables. These variables can be affected by both views of internal and external events, such as changes in views of economic inflation, legal trends and legislative changes, as well as differentiating views of individuals involved in the reserve estimation process, among others. We continually refine our estimates in a regular, ongoing process as historical loss experience develops and additional claims are reported and settled. Our objective is to consider all significant facts and circumstances known at the time.
Changes in economic conditions and steps taken by the federal government and the Federal Reserve in response to COVID-19 could lead to inflation trends that are different from those we anticipated when establishing our reserves, which could in turn lead to an increase or decrease in our loss costs and the need to strengthen or reduce reserves. These impacts of inflation on loss costs and reserves could be more pronounced for our HCPL line of business as that business generally requires a longer period of time to settle claims for a given accident year and, accordingly, is relatively more inflation sensitive.
We use various actuarial methods in the process of setting reserves. Each actuarial method generally returns a different value, and for the more recent accident years the variations among the various methodologies can be significant. In order to project ultimate losses, we partition our reserves for analysis such as by line of business, geography, coverage layer or accident year; in all, there are over 200 different partitions of our business used for actuarial evaluation.year. For each partition of our reserves, we evaluate the results of the various methods, along with the supplementary statistical data regarding such factors as closed with and without indemnity ratios, claim severity trends, the expected duration of such trends, changes in the legal and legislative environment and the current economic environment to develop a point estimate based upon management's judgment and past experience. The series of selected point estimates is then combined to produce an overall point estimate for ultimate losses.
HCPL. Over the past several years the most influential factor affecting the analysis of our HCPL reserves and the related development recognized has been an observed increase in claim severity for the broader medical professional liability industry as well as higher initial loss expectations on incurred claims. The severity trend is an explicit component of our pricing models whereas in ourand directly impacts the reserving process the severity trend's impact is implicit.process. Our estimate of this trend and our expectations about changes in this trend impact a variety of factors, from the selection of expected loss ratios to the ultimate point estimates established by management.
Because of the implicit and wide-ranging nature of severity trend assumptions on the loss reserving process, it is not practical to specifically isolate the impact of changing severity trends. However, because severity is an explicit component of our HCPL pricing process we can better isolate the impact that changing severity can have on our loss costs and loss ratios in regards to our pricing models for this business component. Our current HCPL pricing models assume severity trends in the
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range of 2% to 5% depending on state, territory and specialty. In some portions of our HCPL business we have observed and reflected higher severity trends in our estimates of losses and loss adjustment expenses.
Due to the long-tailed nature of our claims and the previously discussed historical volatility of loss costs, selection of a severity trend assumption is a subjective process that is inherently likely to prove inaccurate over time. Given the long tail and volatility, we are generally cautious in making changes to the severity assumptions within our pricing models. All open claims and accident years are generally impacted by a change in the severity trend, which compounds the effect of such a change.

Although the future degree and impact of the ultimate severity trend remains uncertain due to the long-tailed nature of our business, we have given consideration to observed loss costs in setting our rates. For our HCPL business, this practice had generally resulted in rate reductions as claim frequency declined and remained at historically low levels. However, from early 2017 to the current period, the average pricing on renewed business has steadily increased reflective of the rising loss cost environment, and we anticipate further renewal pricing increases due to increasing loss severity.
More recently, another factor affecting our analysis of our HCPL reserves and the related development recognized is the reduction in claims frequency in 2020, some of which is likely associated with the COVID-19 pandemic, as previously discussed. In 2020, we established a $10 million reserve related to COVID-19. This reserve represents our best estimate of ultimate COVID-19 related losses based on currently available information and reported incidents. Similar to our views on our current accident year reserve, we remain cautious in recognizing these favorable frequency trends in our prior accident year reserve due to the long-tailed nature of our HCPL claims as well as the uncertainty surrounding the length and severity of the pandemic. Accordingly, no adjustment has been made to this reserve since 2020.
Workers' Compensation. The projection of changes in claim severity trend has not historically been an influential factor affecting our analysis of workers' compensation reserves, as claims are typically resolved more quickly than the industry norm. As previously mentioned, the determination and calculation of loss development factors, in particular, the selection of tail factors which are used to extend the projection of losses beyond historical data, requires considerable judgment.
Investment Valuations
We record the majority of our investments at fair value as shown in the table below. At September 30, 2020,March 31, 2021, the distribution of our investments based on GAAP fair value hierarchies (levels) was as follows:
Distribution by GAAP Fair Value Hierarchy  Distribution by GAAP Fair Value Hierarchy
Level 1 Level 2 Level 3 Not Categorized Total
Investments		 Level 1Level 2Level 3Not CategorizedTotal
Investments
Investments recorded at: Investments recorded at:
Fair value14% 73% 1% 8% 96%Fair value10%78%1%7%96%
Other valuations 4%Other valuations4%
Total Investments 100%Total Investments100%
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. All of our fixed maturity and equity investments are carried at fair value. The fair value of our short-term securities approximates the cost of the securities due to their short-term nature.
Because of the number of securities we own and the complexity of developing accurate fair values, we utilize multiple independent pricing services to assist us in establishing the fair value of individual securities. The pricing services provide fair values based on exchange-traded prices, if available. If an exchange-traded price is not available, the pricing services, if possible, provide a fair value that is based on multiple broker/dealer quotes or that has been developed using pricing models. Pricing models vary by asset class and utilize currently available market data for securities comparable to ours to estimate a fair value for our securities. The pricing services scrutinize market data for consistency with other relevant market information before including the data in the pricing models. The pricing services disclose the types of pricing models used and the inputs used for each asset class. Determining fair values using these pricing models requires the use of judgment to identify appropriate comparable securities and to choose a valuation methodology that is appropriate for the asset class and available data.
The pricing services provide a single value per instrument quoted. We review the values provided for reasonableness each quarter by comparing market yields generated by the supplied value versus market yields observed in the marketplace. We also compare yields indicated by the provided values to appropriate benchmark yields and review for values that are unchanged or that reflect an unanticipated variation as compared to prior period values. We utilize a primary pricing service for each security type and compare provided information for consistency with alternate pricing services, known market data and information from our own trades, considering both values and valuation trends. We also review weekly trades versus the prices supplied by the services. If a supplied value appears unreasonable, we discuss the valuation in question with the pricing service and make
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adjustments if deemed necessary. Historically our review has not resulted in any material changes to the values supplied by the pricing services. The pricing services do not provide a fair value unless an exchange-traded price or multiple observable inputs are available. As a result, the pricing services may provide a fair value for a security in some periods but not others, depending upon the level of recent market activity for the security or comparable securities.
Level 1 Investments
Fair values for a majority of our equity securities and portions of our corporate debt, short-term and convertible securities are determined using exchange-traded prices. There is little judgment involved when fair value is determined using an exchange-traded price. In accordance with GAAP, we classify securities valued using an exchange-traded price as Level 1 securities.

Level 2 Investments
Most fixed income securities do not trade daily; thus, exchange-traded prices are generally not available for these securities. However, market information (often referred to as observable inputs or market data, including but not limited to, last reported trade, non-binding broker quotes, bids, benchmark yield curves, issuer spreads, two-sided markets, benchmark securities, offers and recent data regarding assumed prepayment speeds, cash flow and loan performance data) is available for most of our fixed income securities. We determine fair value for a large portion of our fixed income securities using available market information. In accordance with GAAP, we classify securities valued based on multiple market observable inputs as Level 2 securities.
Level 3 Investments
When a pricing service does not provide a value for one of our fixed maturity securities, management estimates fair value using either a single non-binding broker quote or pricing models that utilize market based assumptions which have limited observable inputs. The process involves significant judgment in selecting the appropriate data and modeling techniques to use in the valuation process. In accordance with GAAP, we classify securities valued using limited observable inputs as Level 3 securities.
Fair Values Not Categorized
We hold interests in certain investment funds, primarily LPs/LLCs, which measure fund assets at fair value on a recurring basis and provide us with a NAV for our interest. As a practical expedient, we consider the NAV provided to approximate the fair value of the interest. In accordance with GAAP, we do not categorize these investments within the fair value hierarchy.
Nonrecurring Fair Value Measurements
We measure the fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. These assets include investments carried principally at cost, investments in tax credit partnerships, fixed assets, goodwill and other intangible assets. These assets would also include any equity method investments that do not provide a NAV. At September 30, 2020, we recognized a nonrecurring fair value measurement related to the goodwill in our Specialty P&C reporting unit with a carrying value of $161.1 million prior to the fair value measurement. This nonrecurring fair value measurement resulted in the goodwill being written down to its implied fair value of zero resulting in an impairment of the goodwill of $161.1 million (see following discussion under the heading "Goodwill / Intangibles"). The inputs used in the fair value measurement were non-observable and, as such, were categorized as a Level 3 valuation. We did not have any other assets or liabilities that were measured at fair value on a nonrecurring basis at September 30, 2020March 31, 2021 or December 31, 2019.2020.
Investments - Other Valuation Methodologies
Certain of our investments, in accordance with GAAP for the type of investment, are measured using methodologies other than fair value. At September 30, 2020,March 31, 2021, these investments represented approximately 4% of total investments, and are detailed in the following table. Additional information about these investments is provided in Notes 2 and 3 of the Notes to Condensed Consolidated Financial Statements.
(In millions)Carrying ValueGAAP Measurement Method
Other investments:
Other, principally FHLB capital stock$2.4 Principally Cost
Investment in unconsolidated subsidiaries:
Investments in tax credit partnerships24.4 Equity
Equity method investments, primarily LPs/LLCs48.1 Equity
72.5 
BOLI66.9 Cash surrender value
Total investments - Other valuation methodologies$141.8
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(In millions)Carrying Value GAAP Measurement Method
Other investments:   
Other, principally FHLB capital stock$2.9
 Principally Cost
Investment in unconsolidated subsidiaries:   
Investments in tax credit partnerships32.3
 Equity
Equity method investments, primarily LPs/LLCs47.4
 Equity
 79.7
  
BOLI67.4
 Cash surrender value
Total investments - Other valuation methodologies$150.0
  
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Impairments
We evaluate our available-for-sale investment securities, which at September 30, 2020March 31, 2021 and December 31, 20192020 consisted entirely of fixed maturity securities, on at least a quarterly basis for the purpose of determining whether declines in fair value below recorded cost basis represent an impairment loss. We consider a credit-related impairment loss to have occurred:
•if there is intent to sell the security;
•if it is more likely than not that the security will be required to be sold before full recovery of its amortized cost basis; or
•if the entire amortized basis of the security is not expected to be recovered.
The assessment of whether the amortized cost basis of a security is expected to be recovered requires management to make assumptions regarding various matters affecting future cash flows. The choice of assumptions is subjective and requires the use of judgment. Actual credit losses experienced in future periods may differ from management’s estimates of those credit losses. Methodologies used to estimate the present value of expected cash flows are:
The estimate of expected cash flows is determined by projecting a recovery value and a recovery time frame and assessing whether further principal and interest will be received. We consider various factors in projecting recovery values and recovery time frames, including the following:
•third-party research and credit rating reports;
•the current credit standing of the issuer, including credit rating downgrades, whether before or after the balance sheet date;
•the extent to which the decline in fair value is attributable to credit risk specifically associated with the security or its issuer;
•internal assessments and the assessments of external portfolio managers regarding specific circumstances surrounding an investment, which indicate the investment is more or less likely to recover its amortized cost than other investments with a similar structure;
•for asset-backed securities, the origination date of the underlying loans, the remaining average life, the probability that credit performance of the underlying loans will deteriorate in the future and our assessment of the quality of the collateral underlying the loan;
•failure of the issuer of the security to make scheduled interest or principal payments;
•any changes to the rating of the security by a rating agency;
•recoveries or additional declines in fair value subsequent to the balance sheet date;
•adverse legal or regulatory events;
•significant deterioration in the market environment that may affect the value of collateral (e.g. decline in real estate prices);
•significant deterioration in economic conditions; and
•disruption in the business model resulting from changes in technology or new entrants to the industry.
If deemed appropriate and necessary, a discounted cash flow analysis is performed to confirm whether a credit loss exists and, if so, the amount of the credit loss. We use the single best estimate approach for available-for-sale debt securities and consider all reasonably available data points, including industry analyses, credit ratings, expected defaults and the remaining payment terms of the debt security. For fixed rate available-for-sale debt securities, cash flows are discounted at the security's effective interest rate implicit in the security at the date of acquisition. If the available-for-sale debt security’s contractual interest rate varies based on subsequent changes in an independent factor, such as an index or rate, for example, the prime rate, the LIBOR, or the U.S. Treasury bill weekly average, that security’s effective interest rate is calculated based on the factor as it changes over the life of the security. If we intend to sell a debt security or believe we will more likely than not be required to sell a debt security before the amortized cost basis is recovered, any existing allowance will be written off against the security's amortized cost basis, with any remaining difference between the debt security's amortized cost basis and fair value recognized as an impairment loss in earnings.
Exclusive of securities where there is an intent to sell or where it is not more likely than not that the security will be required to be sold before recovery of its amortized cost basis, impairment for debt securities is separated into a credit component and a non-credit component. The credit component of an impairment is the difference between the security’s amortized cost basis and the present value of its expected future cash flows, while the non-credit component is the remaining difference between the security’s fair value and the present value of expected future cash flows. An allowance for expected credit losses will be recorded for the expected credit losses through income and the non-credit component is recognized in OCI. The amount of impairment recognized is limited to the excess of the amortized cost over the fair value of the available-for-sale debt security.

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Deferred Policy Acquisition Costs
Policy acquisition costs (primarily commissions, premium taxes and underwriting salaries) which are directly related to the successful acquisition of new and renewal premiums are capitalized as DPAC and charged to expense, net of ceding commissions earned, as the related premium revenue is recognized. We evaluate the recoverability of our DPAC typically at the segment level each reporting period or in a manner that is consistent with the way we manage our business. Any amounts estimated to be unrecoverable are charged to expense in the current period.
As part of our evaluation of the recoverability of DPAC, we also evaluate our unearned premiums for premium deficiencies. A premium deficiency is recognized if the sum of anticipated losses and loss adjustment expenses, unamortized DPAC and maintenance costs, net of anticipated investment income, exceeds the related unearned premium. If a premium deficiency is identified, the associated DPAC is written off, and a PDR is recorded for the excess deficiency as a component of net losses and loss adjustment expenses in our Condensed Consolidated Statement of Income and Comprehensive Income and as a component of the reserve for losses on our Condensed Consolidated Balance Sheet. During the three and nine months ended September 30, 2020March 31, 2021 we did not determine any DPAC to be unrecoverable.
Estimation of Taxes / Tax Credits
For interim periods, we generally utilize the estimated annual effective tax rate method under which we determine our provision (benefit) for income taxes based on the current estimate of our annual effective tax rate. Under the estimated annual effective tax rate method, items which are unusual, infrequent, or that cannot be reliably estimated are considered in the effective tax rate in the period in which the item is included in income, and are referred to as discrete items. In calculating our year-to-date income tax expense (benefit), we include the estimated benefit of tax credits for the year-to-date period based on the most recently available information provided by the tax credit partnerships; the actual amounts of credits provided by the tax credit partnerships may prove to be different than our estimates. The effect of such a difference is recognized in the period identified.
Deferred Taxes
Deferred federal income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Our temporary differences principally relate to our loss reserves, unearned and advanced premiums, DPAC, tax credit carryforwards, compensation related items, unrealized investment gains (losses) and basis differences on fixed assets, intangible assets and operating leases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to be in effect when such benefits are realized. We review our deferred tax assets quarterly for impairment. If we determine that it is more likely than not that some or all of a deferred tax asset will not be realized, a valuation allowance is recorded to reduce the carrying value of the asset. In assessing the need for a valuation allowance, management is required to make certain judgments and assumptions about our future operations based on historical experience and information as of the measurement period regarding reversal of existing temporary differences, carryback capacity, future taxable income of the appropriate character (including its capital and operating characteristics) and tax planning strategies.
A valuation allowance was established in a prior year against the deferred tax asset related to the NOL carryforwards for the U.K. operations as managementoperations. In addition, a valuation allowance was established in 2020 against a portion of the deferred tax asset related to the U.S. state NOL carryforwards. Management concluded that it was more likely than not that thethese deferred tax assetassets will not be realized. We also established a valuation allowance in a prior year against the deferred tax assets of certain SPCs at our wholly owned Cayman Islands reinsurance subsidiary, Inova Re. Due to the limited operations of these SPCs, management concluded that a valuation allowance was required. As of September 30, 2020,March 31, 2021, management concluded that a valuation allowance was still required against the deferred tax assets related to the NOL carryforwards for the U.K. operations, against the deferred tax assets related to the U.S. state NOL carryforwards and against the deferred tax assets of certain SPCs at Inova Re. See further discussion in Note 65 of the Notes to Consolidated Financial Statements in our December 31, 20192020 report on Form 10-K.
U.S. Tax Cuts and Jobs Act
The TCJA introduced a minimum tax on payments made to related foreign entities referred to as the BEAT. The BEAT is imposed by adding back into the U.S. tax base any base erosion payment made by the U.S. taxpayer to a related foreign entity and applying a minimum tax rate to this newly calculated modified taxable income. Base erosion payments represent any amount paid or accrued by the U.S. taxpayer to a related foreign entity for which a deduction is allowed. Premiums we cede to the SPCs at Inova Re, one of our wholly owned Cayman Islands reinsurance subsidiaries, do not fall within the scope of base erosion payments as the SPCs at Inova Re have elected to be taxed as U.S. taxpayers. However, premiums that we cede to any active SPC at our other wholly owned Cayman Islands reinsurance subsidiary, Eastern Re, fall within the scope of base erosion payments and therefore could be significantly impacted by the BEAT. We have evaluated our exposure to the BEAT and have concluded that our expected outbound deductible payments to related foreign entities are below the threshold for application of the BEAT; therefore, we have not recognized any incremental tax expense for the BEAT provision of the TCJA during the three

and nine months ended September 30, 2020 or 2019. See further discussion on our Cayman Islands SPC operations in the Segment Results - Segregated Portfolio Cell Reinsurance section that follows. See further discussion in Note 4 of the Notes to Condensed Consolidated Financial Statements.
The TCJA also requires a U.S. shareholder of a controlled foreign corporation to include its GILTI in U.S. taxable income. The GILTI amount is based on the U.S. shareholder’s aggregate share of the gross income of the controlled foreign corporation reduced by certain exceptions and a net deemed tangible income return. The net deemed tangible income return is based on the controlled foreign corporation’s basis in the tangible depreciable business property. Cell rental fee income earned by Inova Re and Eastern Re fall within the scope of the GILTI provisions of the TCJA. We have evaluated the new GILTI provisions of the TCJA, and we have made an accounting policy election to treat the taxes due on the inclusion of GILTI in U.S. taxable income as a current period expense when incurred. We recognized a nominal amount of tax expense for the GILTI provision of the TCJA during each of the three and nine months ended September 30, 2020 and 2019. See further discussion in Note 4 of the Notes to Condensed Consolidated Financial Statements.Legislation
Coronavirus Aid, Relief and Economic Security Act
In response to COVID-19, the CARES Act was signed into law on March 27, 2020 and contains several provisions for corporations and eases certain deduction limitations originally imposed by the TCJA. The CARES Act, among other things, includes temporary changes regardingSee further discussion in Note 5 of the prior and future utilization of NOLs, temporary changesNotes to the prior and future limitationsConsolidated Financial Statements in our December 31, 2020 report on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes and the creation of certain refundable employee retention credits.Form 10-K. We anticipate the temporary changes regarding NOL carryback provisions included in the CARES Act will have a favorable impact on our liquidity (see discussion that follows in the Liquidity and Capital Resources and Financial Condition section under the heading "Taxes").
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American Rescue Plan Act of 2021
In response to economic concerns associated with COVID-19, the American Rescue Plan Act of 2021 was signed into law on March 11, 2021 and includes an expansion of the number of employees covered by the limitation on the deductibility of compensation in excess of $1 million. This provision is effective for tax years beginning after December 31, 2026. We have evaluated this provision as well as the other provisions of the CARESAmerican Rescue Plan Act of 2021 and concluded that they will not have a material impact on our financial position or results of operations.operations as of March 31, 2021. See further discussion in Note 45 of the Notes to Condensed Consolidated Financial Statements.
Unrecognized Tax Benefits
We evaluate tax positions taken on tax returns and recognize positions in our financial statements when it is more likely than not that we will sustain the position upon resolution with a taxing authority. If recognized, the benefit is measured as the largest amount of benefit that has a greater than 50% probability of being realized. We review uncertain tax positions each period,quarter, considering changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law, and make adjustments as we consider necessary. Adjustments to our unrecognized tax benefits may affect our income tax expense, and settlement of uncertain tax positions may require the use of cash. Other than differences related to timing, no significant adjustments were considered necessary during the three and nine months ended September 30, 2020March 31, 2021 or 2019.2020. At September 30, 2020,March 31, 2021, our liability for unrecognized tax benefits approximated $10.4$5.2 million.
Goodwill / Intangibles
Goodwill isand intangible assets are tested for impairment annually or more frequently if circumstances indicate an impairment may have occurred. The date of our annual goodwill impairment testing is October 1. For our last annual impairment test at October 1, 2019, we performed qualitative assessments that supported a conclusion that the fair value of all of the reporting units with goodwill exceeded their carrying value.
Impairment of goodwill is tested at the reporting unit level, which is consistent with our reportable segments identified in Note 1314 of the Notes to Condensed Consolidated Financial Statements. Of the five reporting units, the three withtwo have net goodwill were tested for impairment in the third quarter of 2020 - Specialty P&C, Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance.
As disclosed For our last annual impairment test at October 1, 2020, we performed qualitative assessments for our Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance reporting units (see Note 6 of the Notes to Condensed Consolidated Financial Statements). Management concluded that it was not more likely than not that the fair value of each of our two reporting units that have net goodwill was less than the carrying value of each reporting unit as of the testing date; therefore no further impairment testing was required. In addition, there were no triggering events as of March 31, 2021 that would suggest an updated impairment test would be needed for our goodwill and intangible assets. Additional information regarding our goodwill and intangible assets is included Note 1 and Note 6 of the Notes to Consolidated Financial Statements included in our June 30,December 31, 2020 report on Form 10-Q, COVID-19 has caused significant market volatility impacting our actual and projected results along with a decline in our stock price. These impacts have persisted into the third quarter; and as a result, management performed new quantitative assessments of goodwill on our Specialty P&C and Workers' Compensation Insurance reporting units using updated marketplace data. The updated data, which is significantly influenced by our continued depressed stock price relative to both our own book value and the comparable stock prices of our peers, impacted a number of key variables in our analysis including the determination of a higher discount rate and lower valuation multiples. In addition, new guidance given by the Federal Reserve during the current quarter regarding the expectation of a prolonged low interest rate environment impacted our analysis.
For each of the interim impairment assessments in the second and third quarters of 2020, management estimated the fair value of the reporting units using both an income approach and a market approach using marketplace data that was current at the time of each respective analysis. The estimate of fair value derived from the income approach was based on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital determined separately for each reporting unit. The estimate of fair value derived from the market approach was based on price

to book multiple data. The determination of fair value involved the use of significant estimates and assumptions, including revenue growth rates, operating margins, capital requirements, tax rates, terminal growth rates, discount rates, comparable public companies and synergistic benefits available to market participants. In addition, management made certain judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine the carrying amount of each reporting unit.
This analysis during the third quarter of 2020 indicated an impairment of the goodwill associated with our Specialty P&C reporting unit and accordingly we recorded a $161.1 million charge to goodwill in the current quarter.
Management also performed impairment tests of certain of our definite and indefinite lived intangible assets for which a triggering event was deemed to have occurred. Based upon these impairment tests, no impairment of our definite or indefinite lived intangible assets was identified at September 30, 2020.10-K.
Given the evolving, uncertain nature of the COVID-19 pandemic, the estimates and assumptions used by management in these impairment tests have inherent uncertainties, and different assumptions could lead to materially different results including impairment charges in the future. Management expects to continue to monitor developments and perform updated analyses as necessary. See Note 5 of the Notes to Condensed Consolidated Financial Statements for additional information about our goodwill.
Leases
We are involved in a number of leases, primarily for office facilities. We determine if an arrangement is a lease at the inception date of the contract and classify all leases as either financing or operating. As of September 30, 2020, all of our leases were classified as operating. Operating lease ROU assets and operating lease liabilities are recognized as of the lease commencement date based on the present value of the remaining lease payments, discounted over the term of the lease using a discount rate determined based on information available as of the commencement date. The ROU asset represents the right to use the underlying asset (office space) for the lease term. As the majority of our lessors do not provide an implicit discount rate, we use our collateralized incremental borrowing rate in determining the present value of remaining lease payments. For leases entered into or reassessed after the adoption of ASU 2016-02 on January 1, 2019, we account for lease and non-lease components of a contract as a single lease component.
We evaluate our operating lease ROU assets for impairment at the asset group level whenever events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable. The carrying amount of an asset group, which includes the operating lease ROU asset and the related operating lease liability, is not recoverable if the carrying amount exceeds the sum of the undiscounted cash flows expected to result from the use of the asset group over the life of the primary asset in the asset group. That assessment is based on the carrying amount of the asset group, including the operating lease ROU asset and the related operating lease liability, at the date it is tested for recoverability, and an impairment loss is measured and recognized as the amount by which the carrying amount of the asset group exceeds its fair value. Any impairment loss is allocated to each asset in the asset group, including the operating ROU asset.
When a lease of an office facility is to be abandoned and will not be subleased, we first evaluate whether or not the operating lease ROU asset’s inclusion in an existing asset group continues to be appropriate and if the commitment to abandon the lease constitutes a change in circumstances requiring the operating lease ROU asset, or the larger asset group, to be tested for impairment. If an impairment test is required, it is performed in the same manner as discussed above. Any remaining carrying value of the operating lease ROU asset is amortized from the date we commit to a plan to abandon the lease to the expected date that we will cease to use the leased property. Leases to be abandoned in which we have the intent or practical ability to sublease continue to be accounted for under a held and use model, with no change to the amortization period of the operating lease ROU asset, and are evaluated for impairment as a separate asset group at the date the sublease is executed.
Additional information regarding our leases is included in Note 8 of the Notes to Condensed Consolidated Financial Statements herein and Note 1 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2019 report on Form 10-K.
Audit Premium
Workers’ compensation premiums are determined based upon the payroll of the insured, respective premium rates and, where applicable, an experience-based modification factor. An audit of the policyholders’ records is conducted after policy expiration to make a final determination of applicable premiums. Audit premium due from or due to a policyholder as a result of an audit is reflected in net premiums written and earned when billed. We track, by policy, the amount of additional premium billed in final audit invoices as a percentage of payroll exposure and use this information to estimate the probable additional amount of EBUB premium as of the balance sheet date. We include changes to the EBUB premium estimate in net premiums written and earned in the period recognized. We reduced our EBUB premium estimate by $0.4 million and $1.3 million during the three and nine months ended September 30, 2020, respectively, which primarily reflected a reduction in earned payroll

exposure. As a result of the economic impact of COVID-19, we expect future reductions in payroll exposure related to in-force policies that could result in a significant decrease in audit premium and our EBUB estimate. We will continue to monitor and adjust the estimate, if necessary, based on changes in insured payrolls and economic conditions, as experience develops or new information becomes known; however, the length and magnitude of such changes depends on future developments, which are highly uncertain and cannot be predicted.
Lloyd’s Premium Estimates
For certain insurance policies and reinsurance contracts written in our Lloyd’s Syndicates segment, premiums are initially recognized based upon estimates of ultimate premium. Estimated ultimate premium consists primarily of premium written under delegated underwriting authority arrangements, which consist primarily of binding authorities, and certain assumed reinsurance agreements. These estimates of ultimate premium are judgmental and are dependent upon certain assumptions, including historical premium trends for similar agreements. As reports are received from programs, ultimate premium estimates are revised, if necessary, with changes reflected in current operations.
Accounting Changes
During the second quarter of 2020, we early adopted ASU 2019-12 which is intended to simplify various aspects related to accounting for income taxes. The most impactful provision of the new guidance on the Company is the removal of the limitation on the tax benefit recognized on pre-tax losses during interim periods in which the year-to-date loss exceeds the expected loss for the fiscal year.
We did not have any other change in accounting estimate or policy that had a material effect on our results of operations or financial position during the ninethree months ended September 30, 2020.March 31, 2021. We are not aware of any accounting changes not yet adopted as of September 30, 2020March 31, 2021 that wouldcould have a material effectimpact on our results of operation,operations, financial position or cash flows. Note 1 of the Notes to Condensed Consolidated Financial Statements provides additional detail regarding accounting changes not yet adopted.
Liquidity and Capital Resources and Financial Condition
Overview
ProAssurance Corporation is a holding company and is a legal entity separate and distinct from its subsidiaries. As a holding company, our principal source of external revenue is our investment revenues. In addition, dividends from our operating subsidiaries represent another source of funds for our obligations, including debt service and shareholder dividends. We also charge our operating subsidiaries within our Specialty P&C and Workers' Compensation Insurance segments a management fee based on the extent to which services are provided to the subsidiary and the amount of gross premium written by the subsidiary. At September 30, 2020,March 31, 2021, we held cash and liquid investments of approximately $266$250 million outside our insurance subsidiaries that were available for use without regulatory approval or other restriction. We also have $250 million in permitted borrowings available under our Revolving Credit Agreement as well as the possibility of a $50 million accordion feature, if successfully subscribed. As of OctoberApril 30, 2020,2021, no borrowings were outstanding under our Revolving Credit Agreement.
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To date, during 2020,2021, our operating subsidiaries have paid dividends to us of approximately $117$15 million, all of which were paid in April 2021. Dividends paid in April 2021 have not been included extraordinary dividendsin our cash and liquid investments held outside of $64 million.our insurance subsidiaries at March 31, 2021. In the aggregate, our insurance subsidiaries are permitted to pay additional dividends of approximately $46$92 million over the remainder of 20202021 without prior approval of state insurance regulators. However, the payment of any dividend requires prior notice to the insurance regulator in the state of domicile, and the regulator may reduce or prevent the dividend if, in its judgment, payment of the dividend would have an adverse effect on the surplus of the insurance subsidiary. We make the decision to pay dividends from an insurance subsidiary based on the capital needs of that subsidiary and may pay less than the permitted dividend or may also request permission to pay an additional amount (an extraordinary dividend).

Cash Flows
Cash flows between periods compare as follows:
Three Months Ended March 31
(In thousands)20212020Change
Net cash provided (used) by:
Operating activities$28,700 $(12,049)$40,749 
Investing activities(26,261)71,825 (98,086)
Financing activities(3,386)(17,976)14,590 
Increase (decrease) in cash and cash equivalents$(947)$41,800 $(42,747)
 Nine Months Ended September 30
(In thousands)2020 2019 Change
Net cash provided (used) by:     
Operating activities$73,173
 $128,803
 $(55,630)
Investing activities21,999
 (25,717) 47,716
Financing activities(38,593) (81,346) 42,753
Increase (decrease) in cash and cash equivalents$56,579
 $21,740
 $34,839
Nine Months Ended September 30Three Months Ended March 31
(In thousands)2019 2018 Change(In thousands)20202019Change
Net cash provided (used) by:     Net cash provided (used) by:
Operating activities$128,803
 $146,394
 $(17,591)Operating activities$(12,049)$34,392 $(46,441)
Investing activities(25,717) 234,783
 (260,500)Investing activities71,825 3,868 67,957 
Financing activities(81,346) (428,113) 346,767
Financing activities(17,976)(46,901)28,925 
Increase (decrease) in cash and cash equivalents$21,740
 $(46,936) $68,676
Increase (decrease) in cash and cash equivalents$41,800 $(8,641)$50,441 
The principal components of our operating cash flows are the excess of premiums collected and net investment income over losses paid and operating costs, including income taxes. Timing delays exist between the collection of premiums and the payment of losses associated with the premiums. Premiums are generally collected within the twelve-month period after the policy is written, while our claim payments are generally paid over a more extended period of time. Likewise, timing delays exist between the payment of claims and the collection of any associated reinsurance recoveries.
The increase in operating cash flows for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 of $40.7 million was primarily due to a decrease in paid losses of $54.5 million driven by our Specialty P&C and Segregated Portfolio Cell Reinsurance segments. The decrease in paid losses in our Specialty P&C segment was primarily due to a smaller number of claims resolved with large indemnity payments as compared to the prior year period, some of which is likely associated with the COVID-19 pandemic including the disruption of the court systems. The decrease in paid losses in our Segregated Portfolio Cell Reinsurance segment reflected the effect of the payment of a $10 million claim during the first quarter of 2020 by an SPC at Eastern Re in which we do not participate. This claim payment related to a reserve established by the SPC in 2019 related to an errors and omissions liability policy. Additionally, the increase in operating cash flows reflected a decrease in cash paid for operating expenses of $17.7 million driven by a decrease in various operational expenses in our Specialty P&C, Workers' Compensation Insurance and Corporate segments resulting from improvements over the past year including organizational structure enhancements and improved operating efficiencies. In addition, the decrease in cash paid for operating expenses was due to our decreased participation in the results of Syndicate 1729 for the 2020 underwriting year. Furthermore, the increase in operating cash flows reflected a tax refund of approximately $9.0 million which we received in February 2021 (see additional discussion within this section under the heading "Taxes" that follows). The increase in operating cash flows was partially offset by a decrease in net premium receipts of $33.6 million driven by our Lloyd's Syndicates and Specialty P&C segments. The decrease in premium receipts in our Lloyd's Syndicates segment reflected our decreased participation in the results of Syndicate 1729 for the 2020 underwriting year. The decrease in premium receipts in our Specialty P&C segment was due to our re-underwriting efforts and the dissolution of our arrangement with CAPAssurance. The remaining variance in operating cash flows for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was comprised of individually insignificant components.
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The decrease in operating cash flows for the ninethree months ended September 30,March 31, 2020 as compared to the ninethree months ended September 30,March 31, 2019 of $55.6$46.4 million was primarily due to an increase in paid losses of $85.8$54.2 million and a decrease in net premium receipts of $9.3 million. The increase in paid losses was driven by our Specialty P&C and Segregated Portfolio Cell Reinsurance segments. The increase in paid losses in our Specialty P&C segment was primarily due to higher average claim payments which we believe is an early indication that the higher severity trends that we are experiencing in our HCPL case reserve estimates are starting to emerge in actual claim payments. The increase in paid losses in our Segregated Portfolio Cell Reinsurance segment reflected the aforementioned payment of a $10 million claim during the first quarter of 2020 by an SPC at Eastern Re in which we do not participate.Re. The payment related to a reserve established by the SPC in 2019 related to an errors and omissions liability policy. Additionally, the decrease in operating cash flows reflected a decrease in net cash received of $7.4 million associated with the cash settlement of the 2017 calendar year quota share reinsurance arrangement betweenpremium receipts was primarily due to a decline in written premium in our Specialty P&C segment and Syndicate 1729 due to the reduction in premiums ceded to Syndicate 1729. Furthermore, the decrease in operating cash flows also reflected one-time expenses of $3.2 million primarily related to employee severance and early retirement benefits paid to certain employees during the third quarter of 2020.Workers' Compensation Insurance segments. The decrease in operating cash flows was somewhat offset by an increase in net premium receipts of $34.6 million, a decrease in 2020 net tax payments as compared to 2019 of $7.8$6.4 million and an increasea decrease in cash received from investment incomepaid bonuses of $3.8$3.0 million. The increase in net premium receipts was driven by our Specialty P&C segment due to $14.3 million of tail premium received from a large national healthcare account during the second quarter of 2020 (see further discussion in our Segment Results - Specialty Property & Casualty section that follows). The decrease in net tax payments was primarily due to refunds received during the ninethree months ended September 30,March 31, 2020. The increase in cash received from investment income was primarily due to an increase in distributed earnings and redemptions from our portfolio of investments in LPs/LLCs. The remaining variance in operating cash flows for the ninethree months ended September 30,March 31, 2020 as compared to the ninethree months ended September 30,March 31, 2019 was comprised of individually insignificant components.
The decrease in operating cash flows for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 of $17.6 million was primarily due to an increase in paid losses of $19.0 million and a decrease in cash received from investment income of $16.0 million. The increase in paid losses was driven by our Workers' Compensation Insurance and Specialty P&C segments primarily due to the timing of loss payments between periods. The decrease in cash received from investment income was primarily due to a decline in distributed earnings from our unconsolidated subsidiaries. In addition, the decrease in operating cash flows reflected a decrease in net cash received of $7.1 million associated with the cash settlement of the 2017 and 2016 calendar year quota share reinsurance arrangements between our Specialty P&C segment and Syndicate 1729 due to the reduction in premiums ceded to Syndicate 1729. The decrease in operating cash flows was partially offset by an increase in net premium receipts of $20.5 million and a decrease in cash paid for operating expenses of $3.7 million. The increase in net premium receipts was primarily due to the growth in written premium in our Lloyd's

Syndicates and Specialty P&C segments. The decrease in cash paid for operating expenses was largely attributable to a decrease in other compensation related costs in our Corporate segment, primarily as a result of lower bonuses, and, to a lesser extent, our Lloyd's Syndicates segment primarily due to the effect of higher operational expenses incurred during 2018 associated with the establishment of Syndicate 6131. The remaining variance in operating cash flows for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 was comprised of individually insignificant components.
We manage our investing cash flows to ensure that we will have sufficient liquidity to meet our obligations, taking into consideration the timing of cash flows from our investments, including interest payments, dividends and principal payments, as well as the expected cash flows to be generated by our operations as discussed in this section under the heading "Investing Activities and Related Cash Flows."
Our financing cash flows are primarily composedcomprised of dividend payments and borrowings and repayments under our Revolving Credit Agreement. See further discussion of our financing activities in this section under the heading "Financing Activities and Related Cash Flows."

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Operating Activities and Related Cash Flows
Reinsurance
Within our Specialty P&C segment, we use insurance and reinsurance (collectively, “reinsurance”) to provide capacity to write larger limits of liability, to provide reimbursement for losses incurred under the higher limit coverages we offer and to provide protection against losses in excess of policy limits. Within our Workers' Compensation Insurance segment, we use reinsurance to reduce our net liability on individual risks, to mitigate the effect of significant loss occurrences (including catastrophic events), to stabilize underwriting results and to increase underwriting capacity by decreasing leverage. In both our Specialty P&C and Workers' Compensation Insurance segments, we use reinsurance in risk sharing arrangements to align our objectives with those of our strategic business partners and to provide custom insurance solutions for large customer groups. Within our Lloyd's Syndicates segment, Syndicate 1729 utilizes reinsurance to provide capacity to write larger limits of liability on individual risks, to provide protection against catastrophic loss and to provide protection against losses in excess of policy limits. The purchase of reinsurance does not relieve us fromdiscussion in our Liquidity section under the ultimate risk on our policies; however, it does provide reimbursement for certain losses we pay. We pay our reinsurers a premiumsame heading in exchange for reinsurance of the risk. In certainItem 7 of our excess of loss arrangements, the premium due to the reinsurer is determined by the loss experience of the business reinsured, subject to certain minimum and maximum amounts. Until all loss amounts are known, we estimate the premium due to the reinsurer. Changes to the estimate of premium owed underDecember 31, 2020 report on Form 10-K includes additional information regarding our reinsurance agreements related to prior periods are recorded in the period in which the change in estimate occurs and can have a significant effect on net premiums earned.
We offer alternative market solutions whereby we cede certain premiums from our Workers' Compensation Insurance and Specialty P&C segments to either the SPCs at Inova Re or Eastern Re, our Cayman Islands reinsurance subsidiaries which are reported in our Segregated Portfolio Cell Reinsurance segment, or, to a limited extent, an unaffiliated captive insurer for one program. During the three and nine months ended September 30, 2020, we wrote total alternative market premium of approximately $16.1 million and $61.5 million, respectively, and approximately $17.4 million and $73.0 million during the same respective periods of 2019. The majority of these policies ($15.9 million and $58.1 million of premium for the three and nine months ended September 30, 2020, respectively, and $17.3 million and $70.1 million for the same respective periods of 2019) are reinsured to the SPCs at Inova Re or Eastern Re, net of a ceding commission. Each SPC at Inova Re and Eastern Re is owned, fully or in part, by an agency, group or association, and the results of the SPCs are due to the participants of that cell. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC results attributable to external cell participants are reflected as an SPC dividend expense (income) in our Segregated Portfolio Cell Reinsurance segment. See further discussion on our SPC operations in the Segment Results - Segregated Portfolio Cell Reinsurance section that follows. The alternative market workers' compensation policies are ceded from our Workers' Compensation Insurance segment to the SPCs under 100% quota share reinsurance agreements. The alternative market healthcare professional liability policies are ceded from our Specialty P&C segment to the SPCs under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. The nominal portion of the risk that is not ceded to an SPC is retained in our Specialty P&C segment and may also be reinsured under our standard healthcare professional liability reinsurance program depending on the policy limits provided. The remaining premium written in our alternative market business of $0.1 million and $2.8 million for the three and nine months ended September 30, 2020, respectively, and $2.4 million for the nine months ended September 30, 2019 related to one program that was 100% ceded to an unaffiliated captive insurer.
For all of our segments, we make a determination of the amount of insurance risk we choose to retain based upon numerous factors, including our risk tolerance and the capital we have to support it, the price and availability of reinsurance, the volume of business, our level of experience with a particular set of exposures and our analysis of the potential underwriting results. We purchase excess of loss reinsurance to limit the amount of risk we retain and we do so from a number of companies to mitigate concentrations of credit risk. We utilize reinsurance brokers to assist us in the placement of these reinsurance programs and in the analysis of the credit quality of our reinsurers. The determination of which reinsurers we choose to do business with is based upon an evaluation of their then current financial strength, rating and stability. However, the financial strength of our reinsurers and their corresponding ability to pay us may change in the future due to circumstances or events we cannot control or anticipate.

Excess of Loss Reinsurance Agreements
We generally reinsure risks under treaties (our excess of loss reinsurance agreements) pursuant to which the reinsurers agree to assume all or a portion of all risks that we insure above our individual risk retention levels, up to the maximum individual limits offered. Generally, these agreements are negotiated and renewed annually. Our HCPL treaty renews annually on October 1 and, for the October 1, 2020 renewal, we increased our retention to $2 million from $1 million and added provisions for reinstatement premiums which resulted in a reduction to the gross rate paid under the renewed treaty. Historically, our Medical Technology Liability treaty renewed annually on January 1; however, the treaty that renewed on January 1, 2020 renewed on a short-term basis and was renewed again for a full year term on October 1, 2020 along with our HCPL treaty. Our Medical Technology Liability treaty which renewed on October 1, 2020 renewed at a lower rate than the previous agreement, with an increase in retention to $2 million from $1 million. Our Workers' Compensation treaty renews annually on May 1. Our traditional workers' compensation treaty renewed May 1, 2020 at a higher rate than the previous agreement, with an increase in the AAD to 3.16% from 2.1% of subjectceded earned premium, in excess of the $0.5 million retention per loss occurrence; all other material treaty terms were consistent with the expiring agreement. The significant coverages provided by our current excess of loss reinsurance agreements are detailed in the following table.
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Excess of Loss Reinsurance Agreements
pra-20210331_g1.jpg
Healthcare Professional LiabilityMedical Technology & Life Sciences Products
Workers'

Compensation - Traditional
(1) Effective October 1, 2020, one prepaid limit reinstatement of $21M and a second limit reinstatement of up to $21M for the second layer, subject to reinstatement premium, which attaches after the first reinstatement has been completely exhausted. All limit reinstatements thereafter require no additional premium.
(2) Prior to October 1, 2020, retention has beenwas $1M.
(3) Historically, retention has ranged from 5% to 32.5%.
(4) Historically, retention has ranged from $1M to $2M.
(5) Includes an AAD where retention is 3.16% of subject earned premium in annual losses otherwise recoverable in excess of the $500K retention per loss occurrence.
Large HCPL risks that are above the limits of our basic reinsurance treaties are reinsured on a facultative basis, whereby the reinsurer agrees to insure a particular risk up to a designated limit. We also have in place a number of risk sharing arrangements that apply to the first $2 million of losses for certain large healthcare systems and other insurance entities, as well as with certain insurance agencies that produce business for us.

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Other Reinsurance Arrangements
For the workers' compensation business ceded to Inova Re and Eastern Re, each SPC has in place its own reinsurance arrangements; which are illustrated in the following table.
Segregated Portfolio Cell Reinsurance
pra-20210331_g2.jpg
Per Occurrence CoverageAggregate Coverage
(1) The attachment point is based on a percentage of written premium within individual cells, (average is 89%)ranges from 85% to 94%, and varies by cell.
Each SPC has participants and the profit or loss of each cell accrues fully to these cell participants. As previously discussed, we participate in certain SPCs to a varying degree. Each SPC maintains a loss fund initially equal to the difference between premium assumed by the cell and the ceding commission. The external participants of each cell provide collateral to us, typically in the form of a letter of credit, that is initially equal to the difference between the loss fund of the SPC (amount of funds available to pay losses after deduction of ceding commission) and the aggregate attachment point of the reinsurance. Over time, an SPC's retained profits are considered in the determination of the collateral amount required to be provided by the cell's external participants.
Within our Lloyd's Syndicates segment, Syndicate 1729 utilizes reinsurance to provide capacity to write larger limits of liability on individual risks, to provide protection against catastrophic loss and to provide protection against losses in excess of policy limits. The level of reinsurance that Syndicate 1729 purchases is dependent on a number of factors, including its underwriting risk appetite for catastrophic exposure, the specific risks inherent in each line or class of business written and the pricing, coverage and terms and conditions available from the reinsurance market. Reinsurance protection by line of business is as follows:
Reinsurance is utilized on a per risk basis for the property insurance and casualty coverages in order to mitigate risk volatility.
Catastrophic protection is utilized on both our property insurance and casualty coverages to protect against losses in excess of policy limits as well as natural catastrophes.
Both quota share reinsurance and excess of loss reinsurance are utilized to manage the net loss exposure on our property reinsurance coverages.
Property umbrella excess of loss reinsurance is utilized for peak catastrophe and frequency of catastrophe exposures.

External excess of loss reinsurance is utilized by Syndicate 1729 to manage the net loss exposure on the specialty property and contingency coverages ceded to Syndicate 6131. Beginning on July 1, 2020, external quota share reinsurance is utilized by Syndicate 6131 to manage the net loss exposure on the specialty property and contingency coverages it assumes from Syndicate 1729 (see further discussion in Segment Results - Lloyd's Syndicates section that follows).
Syndicate 1729 may still be exposed to losses that exceed the level of reinsurance purchased as well as to reinstatement premiums triggered by losses exceeding specified levels. Cash demands on Syndicate 1729 can vary significantly depending on the nature and intensity of a loss event. For significant reinsured catastrophe losses, the inability or unwillingness of the reinsurer to make timely payments under the terms of the reinsurance agreement could have an adverse effect on Syndicate 1729's liquidity.
Taxes
We are subject to the tax laws and regulations of the U.S., Cayman Islands and U.K. We file a consolidated U.S. federal income tax return that includes the holdingparent company and its U.S. subsidiaries. Our filing obligations include a requirement to make quarterly payments of estimated taxes to the IRS using the corporate tax rate effective for the tax year. We did not make any quarterly estimated tax payments during either of the three and nine months ended September 30, 2020March 31, 2021 or 2019.2020.
As a result of the CARES Act that was signed into law on March 27, 2020, as previously discussed, we now have the ability to carryback NOLs generated in tax years 2018, 2019 and 2020 for up to five years. See further discussion in Note 5 of the Notes to Consolidated Financial Statements included in our December 31, 2020 report on Form 10-K. We have an NOL of approximately $26.1$45.3 million from the 20192020 tax year that will be carried back to the 20142015 tax year and is expected to generate a tax refund of approximately $9.1$15.9 million. Furthermore, our effectiveAdditionally, we had an NOL of approximately $25.6 million from the 2019 tax rate for the three and nine months ended September 30, 2020year which was affected by the tax rate differential on the carryback of the 2020 and 2019 NOLscarried back to the 2015 and 2014 tax years, respectively, when the federal statutoryyear and generated a tax rate was 35% as compared to the current tax raterefund of 21%. See further discussion on our effective tax rate for the three and nine months ended September 30, 2020 in the Segment Results - Corporate section that follows under the heading "Taxes." We have evaluated the other provisions of the CARES Act and concluded that they will not have a material impact on our financial position or results of operations. See further discussion in Note 4 of the Notes to Condensed Consolidated Financial Statements.
Litigation
We are involved in various legal actions related to insurance policies and claims handling including, but not limited to, claims asserted against us by policyholders. These types of legal actions arise in the ordinary course of business and, in accordance with GAAP for insurance entities, are generally considered as a part of our loss reserving process, which is described in detail in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses." We also have other direct actions against the Company unrelated to our claims activityapproximately $9.0 million which we evaluate and account for as a partreceived in February 2021.
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Table of our other liabilities. For these corporate legal actions, we evaluate each case separately and establish what we believe is an appropriate reserve based on GAAP guidance related to contingent liabilities. As of September 30, 2020 there were no material reserves established for corporate legal actions.Contents

Investing Activities and Related Cash Flows
Our investments at September 30, 2020March 31, 2021 and December 31, 20192020 are comprised as follows:
September 30, 2020 December 31, 2019 March 31, 2021December 31, 2020
($ in thousands)Carrying
Value		% of Total Investment Carrying
Value		% of Total Investment($ in thousands)Carrying
Value		% of Total InvestmentCarrying
Value		% of Total Investment
Fixed maturities, available-for-sale     Fixed maturities, available-for-sale
U.S. Treasury obligations$117,364
3% $110,467
3%U.S. Treasury obligations$102,877 3 %$107,059 3 %
U.S. Government-sponsored enterprise obligations11,055
1% 17,340
1%U.S. Government-sponsored enterprise obligations11,944 1 %12,261 1 %
State and municipal bonds319,092
9% 296,093
9%State and municipal bonds322,465 9 %332,920 10 %
Corporate debt1,307,181
39% 1,340,364
40%Corporate debt1,428,866 42 %1,329,342 39 %
Residential mortgage-backed securities247,318
7% 208,408
6%Residential mortgage-backed securities271,548 8 %276,541 8 %
Commercial mortgage-backed securities113,247
3% 80,089
2%Commercial mortgage-backed securities135,037 4 %126,402 4 %
Other asset-backed securities270,828
8% 236,024
7%Other asset-backed securities290,536 9 %273,006 8 %
Total fixed maturities, available-for-sale2,386,085
70% 2,288,785
68%Total fixed maturities, available-for-sale2,563,273 76 %2,457,531 73 %
Fixed maturities, trading53,081
2% 47,284
1%Fixed maturities, trading45,151 1 %48,456 1 %
Total fixed maturities2,439,166
72% 2,336,069
69%Total fixed maturities2,608,424 77 %2,505,987 74 %
Equity investments129,385
4% 250,552
7%Equity investments77,537 2 %120,101 4 %
Short-term investments377,539
12% 339,907
10%Short-term investments280,993 8 %337,813 10 %
BOLI67,393
2% 66,112
2%BOLI66,932 2 %67,847 2 %
Investment in unconsolidated subsidiaries312,848
9% 358,820
11%Investment in unconsolidated subsidiaries299,360 9 %310,529 9 %
Other investments40,650
1% 38,949
1%Other investments71,621 2 %47,068 1 %
Total investments$3,366,981
100% $3,390,409
100%Total investments$3,404,867 100 %$3,389,345 100 %
At September 30, 2020,March 31, 2021, 99% of our investments in available-for-sale fixed maturity securities were rated and the average rating was A+. The distribution of our investments in available-for-sale fixed maturity securities by rating were as follows:
March 31, 2021December 31, 2020
 ($ in thousands)
Carrying
Value		% of Total InvestmentCarrying
Value		% of Total Investment
Rating*
AAA$721,870 28 %$717,187 29 %
AA+100,285 4 %103,996 4 %
AA170,503 7 %168,452 7 %
AA-116,165 4 %122,733 5 %
A+207,918 8 %197,274 8 %
A360,371 14 %323,044 13 %
A-244,943 10 %245,464 10 %
BBB+196,769 8 %189,971 8 %
BBB210,681 8 %190,385 8 %
BBB-82,604 3 %59,847 2 %
Below investment grade138,949 5 %133,607 5 %
Not rated12,215 1 %5,571 1 %
Total$2,563,273 100 %$2,457,531 100 %
*Average of three NRSRO sources, presented as an S&P equivalent. Source: S&P, Copyright ©2021, S&P Global Market Intelligence
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 September 30, 2020 December 31, 2019
 ($ in thousands)
Carrying
Value		% of Total Investment Carrying
Value		% of Total Investment
Rating*     
AAA$689,929
29% $677,554
30%
AA+97,227
4% 84,991
3%
AA165,896
7% 152,118
7%
AA-117,084
5% 153,377
7%
A+204,922
9% 182,966
8%
A316,729
13% 338,697
15%
A-240,140
10% 171,553
7%
BBB+178,727
7% 182,041
8%
BBB179,415
7% 155,935
7%
BBB-56,809
2% 52,523
2%
Below investment grade133,107
6% 130,929
5%
Not rated6,100
1% 6,101
1%
Total$2,386,085
100% $2,288,785
100%
*Average of three NRSRO sources, presented as an S&P equivalent. Source: S&P, Copyright ©2020, S&P Global Market Intelligence
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A detailed listing of our investment holdings as of September 30, 2020March 31, 2021 is located under the Financial Information heading on the Investor Relations page of our website which can be reached directly at www.proassurance.com/investmentholdings or through links from the Investor Relations section of our website, investor.proassurance.com.
We manage our investments to ensure that we will have sufficient liquidity to meet our obligations, taking into consideration the timing of cash flows from our investments, including interest payments, dividends and principal payments, as well as the expected cash flows to be generated by our operations. During the three and nine months ended September 30, 2020,Furthermore, we received and granted requests for premium relief for certain insureds that have been adversely impacted by the recent COVID-19 pandemicmanaged our investments as part of our capital planning in the formanticipation of either premium credits or premium deferrals. While premium credits and deferrals granted during the three and nine months ended September 30, 2020 did not have a significant impact onclosing our liquidity, additional premium relief efforts could have an impact on our cash flows to be generated from our operations in future quarters and could result in an increase to our allowance for expected credit losses related to our premiums receivable.acquisition of NORCAL. In addition to the interest and dividends we will receive from our investments, we anticipate that between $50$40 million and $120$110 million of our portfolio will mature (or be paid down) each quarter over the next twelve months and become available, if needed, to meet our cash flow requirements. In response to COVID-19, we have reduced the rate of reinvestment of these cash flows in order to allow for additional cash availability. The primary outflow of cash at our insurance subsidiaries is related to paid losses and operating costs, including income taxes. The payment of individual claims cannot be predicted with certainty; therefore, we rely upon the history of paid claims in estimating the timing of future claims payments with consideration to current and anticipated industry trends and macroeconomic conditions, including the impacts of COVID-19.conditions. To the extent that we may have an unanticipated shortfall in cash, we may either liquidate securities or borrow funds under existing borrowing arrangements through our Revolving Credit Agreement and the FHLB system. Permitted borrowings under our Revolving Credit Agreement are $250 million with the possibility of an additional $50 million accordion feature, if successfully subscribed. Given the duration of our investments, we do not foresee a shortfall that would require us to meet operating cash needs through additional borrowings. Additional information regarding our Revolving Credit Agreement is detailed in Note 910 of the Notes to Condensed Consolidated Financial Statements.
At September 30, 2020,March 31, 2021, our FAL was comprised of fixed maturity securities with a fair value of $98.3$102.8 million and cash and cash equivalents of $7.5$4.0 million deposited with Lloyd's. See further discussion in Note 3 of the Notes to Condensed Consolidated Financial Statements. During the third quarter of 2020, we received a return of approximately $32.3 million of FAL given the reduction in our participation in the results of Syndicate 1729 for the 2020 underwriting year to 29% from 61%.
Our investment portfolio continues to be primarily composed of high quality fixed income securities with approximately 93%94% of our fixed maturities being investment grade securities as determined by national rating agencies. The weighted average effective duration of our fixed maturity securities at September 30, 2020March 31, 2021 was 3.173.39 years; the weighted average effective duration of our fixed maturity securities combined with our short-term securities was 2.743.06 years.
The carrying value and unfunded commitments for certain of our investments were as follows:
Carrying Value September 30, 2020Carrying ValueMarch 31, 2021
($ in thousands, except expected funding period)September 30, 2020December 31, 2019 Unfunded CommitmentExpected funding period in years($ in thousands, except expected funding period)March 31, 2021December 31, 2020Unfunded CommitmentExpected funding period in years
Qualified affordable housing project tax credit partnerships (1)
$32,263
$46,421
 $771
6
Qualified affordable housing project tax credit partnerships (1)
$24,351 $27,719 $744 6
Historic tax credit partnership (2)
—
2,085
 276
1
All other investments, primarily investment fund LPs/LLCs280,585
310,314
 127,734
4All other investments, primarily investment fund LPs/LLCs275,009 282,810 116,508 3
Total$312,848
$358,820
 $128,781
 Total$299,360 $310,529 $117,252 
(1) The carrying value reflects our total commitments (both funded and unfunded) to the partnerships, less any amortization, since our initial investment. We fund these investments based on funding schedules maintained by the partnerships.
(1) The carrying value reflects our total commitments (both funded and unfunded) to the partnerships, less any amortization, since our initial investment. We fund these investments based on funding schedules maintained by the partnerships.
(1) The carrying value reflects our total commitments (both funded and unfunded) to the partnerships, less any amortization, since our initial investment. We fund these investments based on funding schedules maintained by the partnerships.
(2) The carrying value reflects our funded commitments less any amortization.
Investment fund LPs/LLCs are by nature less liquid and may involve more risk than other investments. We manage our risk through diversification of asset class and geographic location. At September 30, 2020,March 31, 2021, we had investments in 3230 separate investment funds with a total carrying value of $280.6$275.0 million which represented approximately 8% of our total investments. Our investment fund LPs/LLCs generate earnings from trading portfolios, secured debt, debt securities, multi-strategy funds and private equity investments, and the performance of these LPs/LLCs is affected by the volatility of equity and credit markets. For our investments in LPs/LLCs, we record our allocable portion of the partnership operating income or loss as the results of the LPs/LLCs become available, typically following the end of a reporting period.

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Acquisitions
We have entered into a definitive agreement to acquire NORCAL, an underwriter of medical professional liability insurance, subject toOn May 5, 2021, we completed the demutualizationacquisition of NORCAL Mutual, NORCAL's ultimate controlling party. Given the various remaining regulatory approvals required, we are targeting to close the transaction in early 2021. Subject to NORCAL’s conversion from a mutual company to a stock company, we have agreed to acquire 100%by purchasing over 98% of the converted company stock in exchange for base consideration of $450$441 million, andwhich includes cash from ProAssurance of $248 million. The cash consideration from ProAssurance was funded by cash on hand as of May 5, 2021. The final purchase consideration also includes contribution certificates as well as contingent consideration of up to an additional $150 million depending onupon the development of NORCAL’sNORCAL's ultimate net losses over a three-year period following the acquisition date.beginning December 31, 2020. The actual final cost of the transaction could vary due to the ability of NORCAL’s policyholders to elect forms ofbase consideration other than stock in the demutualization transaction as provided by California law. Those alternativeand maximum contingent consideration options are tied to an appraised value of NORCAL as determined by the California insurance regulator rather than the price per share we have agreed to pay for 100% of NORCAL assuming that all policyholders elect to receive stock. Further, the transaction is subject to a number of closing conditions, including a maximum threshold for one offinal verification as the alternative forms of consideration in the demutualization, a minimum threshold for the number of NORCAL shares tendered to us,equity allocation is reviewed and various required regulatory approvals, as previously mentioned.finalized post close. The Agreement and Plan of Acquisition was previously filed as Exhibit 10.110.19 to ProAssurance's Marchour December 31, 2020 report on Form 10-Q. We plan to utilize10-K. Additional information regarding our Revolving Credit Agreement to partially finance the acquisition (see further discussion on our Revolving Credit Agreementof NORCAL is included in this section under the heading "Debt"). The COVID-19 pandemic’s potential disruption to our business operations may require us to access our Revolving Credit Agreement for other purposes including working capital, capital expenditures or other general corporate requirements. If needed, we may be required to obtain additional financing and our ability to arrange such financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. As a result, we may be compelled to take additional measures to preserve our cash flow, including the reduction of operating expenses or reduction or suspension of dividend payments, at least until the impactsNote 15 of the COVID-19 pandemic improve. We believe that funds available under the Revolving Credit Agreement, along with cash generated from our operations and investment portfolio, will be sufficientNotes to meet our liquidity needs.Condensed Consolidated Financial Statements.
Financing Activities and Related Cash Flows
Treasury Shares
During the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, we did not repurchase any common shares and, as of OctoberApril 30, 2020,2021, our remaining Board authorization was approximately $110 million.
ProAssurance Shareholder Dividends
Our Board declared quarterly cash dividends of $0.05 and $0.31 per share during the first quarter of 2021 and 2020, $0.05 per share during each of the second and third quarters of 2020 and $0.31 per share during each of the first three quarters of 2019.respectively. Dividends are paid the month following the quarter in which they are declared. Dividends paid in the first nine months of 2019 included a special dividend of $0.50 per share declared in the fourth quarter of 2018. Given our current earnings profile, the effects that underlying conditions in the broader insurance marketplace continue to have on our results and the uncertainties introduced by the COVID-19 pandemic, our Board made the decision to reduce our quarterly cash dividend from $0.31 per share to $0.05 per share, beginning with the dividend that was declared during the second quarter of 2020. Any decision to pay future cash dividends is subject to the Board’s final determination after a comprehensive review of financial performance, future expectations and other factors deemed relevant by the Board.
Debt
At September 30, 2020March 31, 2021 our debt included $250$250 million of outstanding unsecured senior notes. The notes bear interest at 5.3% annually and are due in 2023 although they may be redeemed in whole or part prior to maturity. There are no financial covenants associated with these notes.
We have a Revolving Credit Agreement, which expires in November 2024, that may be used for general corporate purposes, including, but not limited to, short-term working capital, share repurchases as authorized by the Board and support for other activities, such as the planned acquisition of NORCAL, as previously discussed under the heading "Acquisitions."activities. Our Revolving Credit Agreement permits borrowings of up to $250 million as well as the possibility of a $50 million accordion feature, if successfully subscribed. At September 30, 2020,March 31, 2021, there were no outstanding borrowings on our Revolving Credit Agreement; we are in compliance with the financial covenants of the Revolving Credit Agreement. On May 6, 2021, we borrowed $15 million under our Revolving Credit Agreement to pay certain transaction-related expenses associated with our acquisition of NORCAL (see Note 15 of the Notes to Condensed Consolidated Financial Statements for additional information).
We have Mortgage Loans with one lender in connection with the recapitalization of two office buildings, which mature in December 2027. The Mortgage Loans accrue interest at three-month LIBOR plus 1.325% with principal and interest payable on a quarterly basis. At September 30, 2020,March 31, 2021, the outstanding balance of the Mortgage Loans was approximately $36 million; we are in compliance with the financial covenant of the Mortgage Loans.

Additional information regarding our debt is provided in Note 910 of the Notes to Condensed Consolidated Financial Statements.
We utilize an interest rate cap agreement with a notional amount of $35 million to manage our exposure to increases in LIBOR on our Mortgage Loans. Per the interest rate cap agreement, we are entitled to receive cash payments if and when the three-month LIBOR exceeds 2.35%. Additional information on our interest rate cap agreement is provided in Note 1211 of the Notes to Consolidated Financial Statements in ProAssurance'sour December 31, 20192020 report on Form 10-K.
Two of our insurance subsidiaries are members of an FHLB. Through membership, those subsidiaries have access to secured cash advances which can be used for liquidity purposes or other operational needs. In order for us to use FHLB proceeds, regulatory approvals may be required depending on the nature of the transaction. To date, those subsidiaries have not materially utilized their membership for borrowing purposes.
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Off-Balance Sheet Arrangements
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We have no significant off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, capital balances, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. See more information on our off-balance sheet arrangements in Note 7 of the Notes to Condensed Consolidated Financial Statements.

Results of Operations – Three and Nine Months EndedSeptember 30, 2020 March 31, 2021 Compared to Three and Nine Months EndedSeptember 30, 2019 March 31, 2020
Selected consolidated financial data for each period is summarized in the table below.
Three Months Ended March 31
($ in thousands, except per share data)20212020Change
Revenues:
Net premiums written$202,270 $232,217 $(29,947)
Net premiums earned$187,358 $203,855 $(16,497)
Net investment result21,805 19,268 2,537 
Net realized investment gains (losses)8,849 (28,673)37,522 
Other income2,005 2,251 (246)
Total revenues220,017 196,701 23,316 
Expenses:
Net losses and loss adjustment expenses149,785 164,832 (15,047)
Underwriting, policy acquisition and operating expenses56,451 62,056 (5,605)
SPC U.S. federal income tax expense356 222 134 
SPC dividend expense (income)1,742 (508)2,250 
Interest expense3,212 4,129 (917)
Total expenses211,546 230,731 (19,185)
Income (loss) before income taxes8,471 (34,030)42,501 
Income tax expense (benefit)736 (12,076)12,812 
Net income (loss)$7,735 $(21,954)$29,689 
Non-GAAP operating income (loss)$2,085 $(1,146)$3,231 
Earnings (loss) per share:
Basic$0.14 $(0.41)$0.55 
Diluted$0.14 $(0.41)$0.55 
Non-GAAP operating income (loss) per share:
Basic$0.04 $(0.02)$0.06 
Diluted$0.04 $(0.02)$0.06 
Net loss ratio79.9 %80.9 %(1.0  pts)
Underwriting expense ratio30.1 %30.4 %(0.3  pts)
Combined ratio110.0 %111.3 %(1.3  pts)
Operating ratio102.0 %101.1 %0.9  pts
Effective tax rate8.7 %35.5 %(26.8  pts)
Return on equity*2.3 %(6.0 %)8.3  pts
*Annualized
In all tables that follow, the abbreviation "nm" indicates that the information or the percentage change is not meaningful.
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 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands, except per share data)20202019Change 20202019Change
Revenues:       
Net premiums written$213,260
$228,058
$(14,798) $605,222
$663,784
$(58,562)
Net premiums earned$194,559
$215,788
$(21,229) $605,708
$633,086
$(27,378)
Net investment result21,777
22,404
(627) 33,812
62,798
(28,986)
Net realized investment gains (losses)8,838
1,134
7,704
 150
47,064
(46,914)
Other income1,723
2,548
(825) 5,668
7,419
(1,751)
Total revenues226,897
241,874
(14,977) 645,338
750,367
(105,029)
        
Expenses:       
Net losses and loss adjustment expenses145,581
161,614
(16,033) 521,412
489,808
31,604
Underwriting, policy acquisition and operating expenses59,433
61,861
(2,428) 180,178
185,960
(5,782)
SPC U.S. federal income tax expense871
—
871
 1,573
—
1,573
Segregated portfolio cell dividend expense (income)3,854
3,621
233
 7,988
1,375
6,613
Interest expense3,881
4,274
(393) 11,725
12,850
(1,125)
Goodwill impairment161,115
—
161,115
 161,115
—
161,115
Total expenses374,735
231,370
143,365
 883,991
689,993
193,998
Income (loss) before income taxes(147,838)10,504
(158,342) (238,653)60,374
(299,027)
Income tax expense (benefit)2,141
(6,689)8,830
 (48,621)(4)(48,617)
Net income (loss)$(149,979)$17,193
$(167,172) $(190,032)$60,378
$(250,410)
Non-GAAP operating income (loss)$2,559
$16,269
$(13,710) $(31,029)$24,567
$(55,596)
Earnings (loss) per share:       
Basic$(2.78)$0.32
$(3.10) $(3.53)$1.12
$(4.65)
Diluted$(2.78)$0.32
$(3.10) $(3.53)$1.12
$(4.65)
Non-GAAP operating income (loss) per share:       
Basic$0.05
$0.30
$(0.25) $(0.58)$0.46
$(1.04)
Diluted$0.05
$0.30
$(0.25) $(0.58)$0.46
$(1.04)
Net loss ratio74.8%74.9%(0.1 pts) 86.1%77.4%8.7 pts
Underwriting expense ratio30.5%28.7%1.8 pts 29.7%29.4%0.3 pts
Combined ratio105.3%103.6%1.7 pts 115.8%106.8%9.0 pts
Operating ratio96.6%92.6%4.0 pts 106.6%95.7%10.9 pts
Effective tax rate(1.4%)(63.7%)62.3 pts 20.4%—%20.4 pts
Return on equity*(8.8%)4.3%(13.1 pts) (14.1%)5.2%(19.3 pts)
        
* Annualized. The 2020 goodwill impairment was not annualized in our calculation of ROE.
In all tables that follow, the abbreviation "nm" indicates that the information or the percentage change is not meaningful.

Table of Contents

Executive Summary of Operations
The following sections provide an overview of our consolidated and segment results of operations for the three and nine months ended September 30, 2020March 31, 2021 as compared to the three and nine months ended September 30, 2019.March 31, 2020. See the Segment Results sections that follow for additional information regarding each segment's results.
Revenues
The following table shows our consolidated and segment net premiums earned:
Three Months Ended March 31
($ in thousands)20212020Change
Net premiums earned
Specialty P&C$115,613 $120,359 $(4,746)(3.9 %)
Workers' Compensation Insurance40,011 44,515 (4,504)(10.1 %)
Segregated Portfolio Cell Reinsurance15,884 16,980 (1,096)(6.5 %)
Lloyd's Syndicates15,850 22,001 (6,151)(28.0 %)
Consolidated total$187,358 $203,855 $(16,497)(8.1 %)
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)2020 2019 Change 2020 2019 Change
Net premiums earned               
Specialty P&C$117,849
 $125,237
 $(7,388) (5.9%) $365,305
 $375,315
 $(10,010) (2.7%)
Workers' Compensation Insurance42,516
 49,477
 (6,961) (14.1%) 129,437
 141,990
 (12,553) (8.8%)
Segregated Portfolio Cell Reinsurance16,052
 19,779
 (3,727) (18.8%) 49,780
 58,566
 (8,786) (15.0%)
Lloyd's Syndicates18,142
 21,295
 (3,153) (14.8%) 61,186
 57,215
 3,971
 6.9%
Consolidated total$194,559
 $215,788
 $(21,229) (9.8%) $605,708
 $633,086
 $(27,378) (4.3%)
For the nine months ended September 30, 2020,All of our operating segments saw a decrease in consolidated net premiums earned included $14.3 million of tail premium written and fully earned during the second quarter of 2020 in connection with a large national healthcare account in our Specialty P&C segment (see further discussion under the heading "Expenses" in this section and in our Segment Results - Specialty Property & Casualty section that follows). Consolidated net premiums earned for the three and nine months ended September 30, 2019 included $2.7 million of premium written and fully earned from a loss portfolio transfer entered into during the third quarter of 2019 in our Specialty P&C segment (see further discussion in our Segment Results - Specialty Property & Casualty section that follows). Excluding the impact of the large national healthcare account's tail policy premium and the 2019 loss portfolio transfer, consolidated net premiums earned decreased $18.5 million and $39.0 million during the 2020 three- and nine-month periods, respectively,March 31, 2021 as compared to the same periodsperiod of 2019.2020, particularly our Lloyd's Syndicates segment due to our decreased participation in the results of Syndicate 1729 for the 2020 underwriting year to 29% from 61%. The decrease in net premiums earned in our Specialty P&C segment for the 2020 three- and nine-month periods was primarily due to our focus on underwriting disciplinere-underwriting efforts as we continue to emphasize careful risk selection, rate adequacy and a willingness to walk away from business that does not fit our goal of achieving a long-term underwriting profit, partially offset by changes in premium adjustments related to loss sensitive policies.as well as competitive professional liability market conditions. For both our Workers' Compensation Insurance segment,and Segregated Portfolio Cell Reinsurance segments, the decrease in net premiums earned for the 2020 three- and nine-month periods reflected the competitive workers' compensation market conditions and, for our Workers' Compensation Insurance segment, a decrease in audit premium and a reduction in our EBUB premium estimate and, for the 2020 nine-month period, the reduction in premium funding for a large workers' compensation alternative market program and the impact of retrospectively-rated policy adjustments. The decrease in net premiums earned in our Segregated Portfolio Cell Reinsurance segment for the 2020 three- and nine-month periods also reflected the competitive workers' compensation market conditions. The decrease in net premiums earned in our Lloyd's Syndicates segment for the 2020 three-month period was driven by our decreased participation in Syndicate 1729 for the 2020 underwriting year to 29% from 61%. The increase in net premiums earned in our Lloyd's Syndicates segment for the 2020 nine-month period was driven by the pro rata effect of higher premiums written during the preceding twelve months, primarily property insurance coverages, partially offset by our decreased participation in Syndicate 1729, as previously discussed, which was not reflected in our results until the second quarter of 2020.estimate.
The following table shows our consolidated net investment result:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
($ in thousands)2020 2019 Change 2020 2019 Change($ in thousands)20212020Change
Net investment income$16,924
 $23,681
 $(6,757) (28.5%) $55,877
 $70,038
 $(14,161) (20.2%)Net investment income$15,017 $20,830 $(5,813)(27.9 %)
Equity in earnings (loss) of unconsolidated subsidiaries4,853
 (1,277) 6,130
 480.0% (22,065) (7,240) (14,825) (204.8%)
Equity in earnings (loss) of unconsolidated subsidiaries*Equity in earnings (loss) of unconsolidated subsidiaries*6,788 (1,562)8,350 534.6 %
Net investment result$21,777
 $22,404
 $(627) (2.8%) $33,812
 $62,798
 $(28,986) (46.2%)Net investment result$21,805 $19,268 $2,537 13.2 %
*Equity in earnings (loss) of unconsolidated subsidiaries includes our share of the operating results of interests we hold in certain LPs/LLCs as well as operating losses associated with our tax credit partnership investments, which are designed to generate returns in the form of tax credits and tax-deductible project operating losses.*Equity in earnings (loss) of unconsolidated subsidiaries includes our share of the operating results of interests we hold in certain LPs/LLCs as well as operating losses associated with our tax credit partnership investments, which are designed to generate returns in the form of tax credits and tax-deductible project operating losses.
The decreaseincrease in our consolidated net investment result for the three and nine months ended September 30, 2020March 31, 2021 as compared to the same respective periodsperiod of 20192020 was driven by higher earnings from a decrease in our allocation to equities andfew LPs/LLCs, partially offset by lower yields on our short-term investments and corporate debt securities and short-term investments given the actions taken by the Federal Reserve to aggressively reduce interest rates in response to COVID-19. Equity in earnings (loss) of unconsolidated subsidiaries includes our share of the

results of interests we hold in certain LPs/LLCs as well as operating losses associated with our tax credit partnership investments. Our tax credit partnerships are designed to generate returns in the form of tax credits and tax-deductible project operating losses. The change in our investment results from our portfolio of investments in LPs/LLCs for the 2020 three- and nine-month periods as compared to the same periods of 2019 was driven by the volatility in the global financial markets related to COVID-19.
The following table shows our total consolidated net realized investment gains (losses):
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)2020 2019 Change 2020 2019 Change
Net impairment losses recognized in earnings$—
 $(30) $30
 nm
 $(1,508) $(78) $(1,430) 1,833.3%
Other net realized investment gains (losses)8,838
 1,164
 7,674
 659.3% 1,658
 47,142
 (45,484) (96.5%)
Net realized investment gains (losses)$8,838
 $1,134
 $7,704
 679.4% $150
 $47,064
 $(46,914) (99.7%)
We did not recognize any credit-related impairment losses in earnings or non-credit impairment losses in OCI for the three months ended September 30, 2020. For the nine months ended September 30, 2020, we recognized $1.5 million of credit-related impairment losses in earnings and $0.2 million of non-credit impairment losses in OCI in our Corporate segment. The credit-related impairment losses recognized during the 2020 nine-month period related to corporate bonds in the energy and consumer sectors. Additionally, the 2020 nine-month period included credit-related impairment losses related to four corporate bonds in various sectors, which were sold during 2020. The non-credit impairment losses recognized during the 2020 nine-month period related to three corporate bonds in the energy and consumer sectors.
Other net realized investment gains during the 2020 three-month period were driven by gains in our available-for-sale fixed maturities in our Corporate segment due to the sale of corporate bondsCOVID-19 and, to a lesser extent, unrealized holding gains resulting from an increasea decrease in fair value on our equity portfolio and convertible securities. Otherallocation to equities. Furthermore, the decline in net realized investment gains recognizedincome during the 2020 nine-month2021 three-month period were driven by realized gains onreflected the saleimpact of available-for-sale fixed maturities and equity investmentscapital planning in anticipation of closing our Corporate segment and, to a lesser extent, unrealized holding gains on trading securities in our Lloyd's Syndicates segment, which were almost entirely offset by unrealized holding losses in our Corporate segment resulting from decreases in the fair value on our equity portfolio due to the volatility in the global financial markets related to COVID-19. Other net realized investment gains recognized during 2019 reflected changes in the valueacquisition of our equity trading portfolio and realized gains and losses from the saleNORCAL.
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Table of equity securities during the periods. See further discussion in our Segment Results - Corporate section that follows.Contents

Expenses
The following table shows our consolidated and segment net loss ratios and net loss development:
 Three Months Ended September 30 Nine Months Ended September 30
($ in millions)2020 2019 Change 2020 2019 Change
Current accident year net loss ratio           
Consolidated ratio80.7% 82.3% (1.6 pts) 91.8% 84.0% 7.8 pts
Specialty P&C89.8% 94.5% (4.7 pts) 107.9% 93.9% 14.0 pts
Workers' Compensation Insurance66.9% 68.2% (1.3 pts) 69.2% 68.2% 1.0 pts
Segregated Portfolio Cell Reinsurance67.3% 66.1% 1.2 pts 63.3% 82.5% (19.2 pts)
Lloyd's Syndicates65.9% 58.3% 7.6 pts 66.5% 60.5% 6.0 pts
            
Calendar year net loss ratio           
Consolidated ratio74.8% 74.9% (0.1 pts) 86.1% 77.4% 8.7 pts
Specialty P&C87.4% 85.9% 1.5 pts 102.2% 85.6% 16.6 pts
Workers' Compensation Insurance62.2% 65.4% (3.2 pts) 65.4% 65.8% (0.4 pts)
Segregated Portfolio Cell Reinsurance42.7% 49.4% (6.7 pts) 48.0% 69.1% (21.1 pts)
Lloyd's Syndicates51.4% 55.9% (4.5 pts) 64.4% 60.5% 3.9 pts
            
Favorable (unfavorable) net loss development, prior accident years           
Consolidated$11.5
 $15.9
 $(4.4) $34.6
 $42.2
 $(7.6)
Specialty P&C$2.9
 $10.7
 $(7.8) $20.7
 $31.0
 $(10.3)
Workers' Compensation Insurance$2.0
 $1.4
 $0.6
 $5.0
 $3.4
 $1.6
Segregated Portfolio Cell Reinsurance$4.0
 $3.3
 $0.7
 $7.6
 $7.8
 $(0.2)
Lloyd's Syndicates$2.6
 $0.5
 $2.1
 $1.3
 $—
 $1.3
The primary drivers of the change in our consolidated current accident year net loss ratio for the three and nine months ended September 30, 2020 as compared to the same periods of 2019 were as follows:
(In percentage points)Increase (Decrease), 2020 versus 2019
Comparative
three-month
period
Comparative
nine-month
period
Estimated ratio increase (decrease) attributable to:
Premium adjustments on loss sensitive policies(1.6 pts)(0.6 pts)
Large national healthcare account tail policy—8.0 pts
COVID-19 reserve—1.7 pts
E&O liability policy reserve—(1.5 pts)
All other, net—0.2 pts
Increase (decrease) in the consolidated current accident year net loss ratio(1.6 pts)7.8 pts
Three Months Ended March 31
($ in millions)20212020Change
Current accident year net loss ratio
Consolidated ratio82.5 %83.8 %(1.3  pts)
Specialty P&C89.8 %94.2 %(4.4  pts)
Workers' Compensation Insurance71.0 %70.2 %0.8  pts
Segregated Portfolio Cell Reinsurance68.9 %65.7 %3.2  pts
Lloyd's Syndicates72.1 %68.7 %3.4  pts
Calendar year net loss ratio
Consolidated ratio79.9 %80.9 %(1.0  pts)
Specialty P&C87.5 %92.2 %(4.7  pts)
Workers' Compensation Insurance65.5 %66.9 %(1.4  pts)
Segregated Portfolio Cell Reinsurance59.3 %55.1 %4.2  pts
Lloyd's Syndicates81.8 %67.2 %14.6  pts
Favorable (unfavorable) reserve development, prior accident years
Consolidated$4.8 $6.0 $(1.2)
Specialty P&C$2.7 $2.4 $0.3 
Workers' Compensation Insurance$2.2 $1.5 $0.7 
Segregated Portfolio Cell Reinsurance$1.4 $1.8 $(0.4)
Lloyd's Syndicates$(1.5)$0.3 $(1.8)
Our consolidated current accident year net loss ratio for the 2020 three- and nine-month periods was impacted2021 three-month period decreased by changes in premium adjustments related to loss sensitive policies in our Specialty P&C segment which accounted for approximately 1.6 and 0.61.3 percentage points respectively, of the decrease in the ratio as compared to the same periods of 2019. For the 2020 nine-month period our consolidated current accident year net loss ratio was also impacted by a tail policy purchased by a large national healthcare account and a COVID-19 reserve in our Specialty P&C segment which accounted for an 8.0 and 1.7 percentage point increase in the ratio, respectively (see further discussion in our Segment Results - Specialty Property & Casualty section that follows). Our consolidated current accident year net loss ratio for the nine months ended September 30, 2019 was affected by a $10 million reserve that an SPC at Eastern Re established during the second quarter of 2019 associated with an assumed E&O liability policy which accounted for a 1.5 percentage point decrease to our consolidated current accident year net loss ratio for the nine months ended September 30, 2020 as compared to the same period of 2019 (see further discussion in our Segment Results - Segregated Portfolio Cell Reinsurance section that follows). Excluding the impacts of the previously discussed items, our consolidated2020 driven by a lower current accident year net loss ratio was unchanged during the 2020 three-month

period and increased 0.2 percentage points during the 2020 nine-month period as compared to the same respective periods of 2019. The remaining increase in the ratio during the 2020 nine-month period was drivenour Specialty P&C segment, partially offset by a higher current accident year net loss ratio in our Lloyd's Syndicates and Workers' Compensation Insurance segments, partially offset by asegments. The lower current accident year net loss ratio in our Specialty P&C segment. Insegment during the 2021 three-month period was primarily due to decreases to certain loss ratios during the current period in our Lloyd's Syndicates segment,Standard Physician and Specialty lines of business as we continue to recognize the beneficial impacts of our re-underwriting efforts and focus on rate adequacy. The higher current accident year net loss ratio in our Lloyd's Syndicates segment was driven by certain property and catastrophe related losses incurred during 2020.losses. For our Workers' Compensation Insurance segment, the higher current accident year net loss ratio was driven by the continuation of intense price competition and the resulting renewal rate decreases as well asand, to a lesser extent, the effect of lower net premiums earned partially offset by favorable trends in claim closing patterns that reduced loss development factors. The lower current accident year net loss ratio in our Specialty P&C segment, excluding(see previous discussion under the items discussed above, was primarily due to decreases in certain loss ratios during the second quarter of 2020 in our Standard Physician and Small Business Unit lines as a result of our re-underwriting efforts and focus on rate adequacy (see further discussion in our Segment Results - Specialty P&C section that follows)heading "Revenues").
In both the 2021 and 2020 and 2019 three- and nine-month periods,three-month period, our consolidated calendar year net loss ratio was lower than our consolidated current accident year net loss ratio due to the recognition of net favorable prior year reserve development, as shown in athe previous table. NetConsolidated net favorable prior year reserve development recognized in the 2020 nine-month2021 three-month period was lower as compared to the same respective period of 20192020 due to unfavorable development recognized in our Lloyd's Syndicates segment driven primarily by catastrophe related losses. In our Specialty P&C segment given ourwe continue to have concerns around elevated loss severity in the broader medical professional liability industry, including our Specialty lines of business, and uncertainties around the impact that the COVID-19 pandemic will ultimately have on variables such as premium volume, claims frequency and severity, historical paid and incurred loss trends, general economic and social trends, inflation and the legal and political environment.industry. In both our Specialty P&C and Workers' Compensation Insurance segments, we have observed a reduction in claims frequency as compared to 2019,in 2020 that has continued into 2021, some of which is likely associated with the COVID-19 pandemic. Duringpandemic including the third quarterdisruption of 2020,the court systems. In our Workers' Compensation Insurance segment, we reduced our current accident year net loss ratio in our Workers' Compensation Insurance segment2020 in response to these favorable frequency trends as these claims are shorter-tailed in nature as compared to our HCPL claims. Due to the continuationlong-tailed nature of favorable trends in 2020, including lowerour HCPL claims, frequency and severity; however, we have remained cautious in recognizingnot yet recognized these favorable frequency trends in our current accident year reserveHCPL reserves.
We continue to remain cautious in our evaluation of our reserves in both our Specialty P&C and Workers' Compensation Insurance segments due to the possibility of delays in reporting and uncertainty surrounding the length and severity of the pandemic. As it relates to our Workers' Compensation Insurance segment, legislative and regulatory bodies in certain states have changed or are attempting to broadenconsidering changing compensability requirements and presumptions for certain types of workers related to COVID-19 claims and, if successful, could result in an increase in claims frequency and severity for the current accident year. Furthermore, as it relates to both our Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments, the current economic conditions resulting from the COVID-19 pandemic have introduced significant risk of a prolonged recession, whichclaims. Such changes could have an adverse impact on our returnthe frequency and severity related to wellness efforts and the abilityCOVID-19 claims in that segment.
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Table of injured workers to return to work, resulting in a potential reduction in favorable claim trends in future periods.Contents
Our consolidated and segment underwriting expense ratios were as follows:
Three Months Ended March 31
20212020Change
Underwriting Expense Ratio
Consolidated30.1 %30.4 %(0.3  pts)
Specialty P&C22.8 %24.6 %(1.8  pts)
Workers' Compensation Insurance30.7 %31.8 %(1.1  pts)
Segregated Portfolio Cell Reinsurance31.6 %29.9 %1.7  pts
Lloyd's Syndicates41.6 %41.6 %—  pts
Corporate*3.8 %2.4 %1.4  pts
*There are no net premiums earned associated with the Corporate segment. Ratios shown are the contribution of the Corporate segment to the consolidated ratio (Corporate operating expenses divided by consolidated net premium earned).
 Three Months Ended September 30 Nine Months Ended September 30
 2020 2019 Change 2020 2019 Change
Underwriting Expense Ratio           
Consolidated30.5% 28.7% 1.8 pts 29.7% 29.4% 0.3 pts
Specialty P&C23.8% 23.7% 0.1 pts 22.7% 23.8% (1.1 pts)
Workers' Compensation Insurance35.2% 30.1% 5.1 pts 32.9% 30.6% 2.3 pts
Segregated Portfolio Cell Reinsurance31.4% 30.1% 1.3 pts 31.1% 29.2% 1.9 pts
Lloyd's Syndicates38.2% 44.2% (6.0 pts) 38.2% 44.5% (6.3 pts)
Corporate*2.6% 1.2% 1.4 pts 2.9% 2.0% 0.9 pts
*There are no net premiums earned associated with the Corporate segment. Ratios shown are the contribution of the Corporate segment to the consolidated ratio (Corporate operating expenses divided by consolidated net premium earned).

The primary driversDespite the decrease in earned premium in all of the change inour operating segments, as previously discussed, our consolidated underwriting expense ratio for the three and nine months ended September 30, 2020March 31, 2021 remained relatively unchanged as compared to the same periodsperiod of 2019 were as follows:
(In percentage points)Increase (Decrease), 2020 versus 2019
Comparative
three-month
period
Comparative
nine-month
period
Estimated ratio increase (decrease) attributable to:
Decrease in consolidated net premiums earned and DPAC amortization(1)
1.8 pts1.7 pts
One-time expenses1.6 pts0.9 pts
Professional fees0.5 pts0.5 pts
Large national healthcare account tail policy premium(2)
— pts(0.8 pts)
All other, net(2.1 pts)(2.0 pts)
Increase (decrease) in2020 driven by decreased operating expenses resulting from the operational and structural changes implemented over the past year and a half. Furthermore, the consolidated underwriting expense ratio1.8 pts0.3 pts
(1) Excludes the large national healthcare account tail policy premium in 2020 and certain one-time expenses included in DPAC amortization of $0.3 million and $0.6 million in the three and nine-months ended September 30, 2020, respectively. See further discussion in Segment Results - Specialty Property & Casualty section.
(2) See previous discussion under the heading "Revenues"
Our consolidated underwriting expense ratio for the 2020 three- and nine-month periods was impacted bythree months ended March 31, 2021 reflected a declinereduction in consolidated net premiums earned which outpacedemployer contributions to the decline in consolidated DPAC amortization, accounting for 1.8 and 1.7 percentage points, respectively,ProAssurance Savings Plan (see Note 17 of the increaseNotes to Consolidated Financial Statements in the ratio, drivenour December 31, 2020 report on Form 10-K). The favorable impact of these reductions was partially offset by our Specialty P&C and Workers' Compensation Insurance segments. Our consolidated underwriting expense ratio also reflected one-time expenses of $3.2 million and $5.4 million during the 2020 three- and nine-month periods, respectively, mainly comprised of early retirement benefits granted to certain employees during the third quarter of 2020 and expenses associated with the restructuring of our HCPL field office organization, largely during the first half of 2020. In addition, our consolidated underwriting expense ratio for the 2020 three- and nine-month periods also reflected an increase in professional fees in our Corporate segment driven by higher transaction-related costs associated with our planned acquisition of NORCAL and, for(see Note 8 of the 2020 nine-month period, corporate legal expenses. The remaining decreaseNotes to Condensed Consolidated Financial Statements).
For the three months ended March 31, 2021, the underwriting expense ratios in our consolidated underwriting expense ratio for the 2020 three-Specialty P&C and nine-month periods of 2.1 and 2.0 percentage points, respectively, primarily reflected lower operating expenses in our Lloyd's Syndicates segment due to our reduced participation in Syndicate 1729 and lower consolidated travel-related costs due to COVID-19. The remaining decrease in our consolidated underwriting expense ratioCorporate segments also reflected the impact of a decrease in various operational expenses resulting from incremental improvements overreduction to the past year inmanagement fee charged to the operating subsidiaries of our Specialty P&C segment including organizational structure enhancementsby our Corporate segment effective January 1, 2021 (see further discussion in our Segment Results - Specialty Property & Casualty and improved operating efficiencies.Segment Results - Corporate sections that follow). This change had no impact to our consolidated underwriting expense ratio.
Taxes
Our provision for income taxes and effective tax rates for the ninethree months ended September 30,March 31, 2021 and 2020 and 2019 were as follows:
($ in thousands)Nine Months Ended September 30
2020 2019 Change
Income (loss) before income taxes$(238,653) $60,374
 $(299,027) (495.3%)
Income tax expense (benefit)(48,621) (4) (48,617) nm
Net income (loss)$(190,032) $60,378
 $(250,410) (414.7%)
Effective tax rate20.4% — %    
 Nine Months Ended September 30
2020 2019
Projected annual effective tax rate59.3 % (54.4%)
Tax effect of discrete items(38.9%) 54.4 %
Total effective tax rate20.4 % — %
($ in thousands)Three Months Ended March 31
20212020Change
Income (loss) before income taxes$8,471 $(34,030)$42,501 124.9 %
Less: Income tax expense (benefit)736 (12,076)12,812 106.1 %
Net income (loss)$7,735 $(21,954)$29,689 135.2 %
Effective tax rate8.7 %35.5 %(26.8  pts)
We recognized income tax expense of $0.7 million during the three months ended March 31, 2021 as compared to an income tax benefit of $48.6$12.1 million for the nine months ended September 30, 2020 as compared to a nominal income tax benefit during the same period of 2019;2020; however, the comparability of our effective tax rates is impacted

by the consolidated pre-tax lossincome recognized during the 2020 nine-month2021 three-month period as compared to the consolidated pre-tax incomeloss recognized in the 2019 nine-month2020 three-month period.
Our projected annual effective tax rates were 59.3%for both the 2021 and (54.4%) as of September 30, 2020 and 2019, respectively, before discrete items were considered. Our projected annual effective tax rate as of September 30, 2020 and September 30, 2019 represents an expected benefit; however, the comparability of our projected annual effective tax rates is impacted by our projection of a pre-tax loss at September 30, 2020 compared to our projection of pre-tax income at September 30, 2019. Discrete items decreased our effective tax rate by 38.9% and increased our effective tax rate by 54.4% for the 2020 and 2019 nine-monththree-month periods respectively, as shown in the table above. Our projected annual effective tax rates as of September 30, 2020 and 2019 were different from the statutory federal income tax rate of 21% primarily due to the benefit recognized from the tax credits transferred to us from our tax credit partnership investments. ForSee further discussion ofin the discrete items impacting our effective tax rates andSegment Operating Results - Corporate section that follows under the differences between ourheading "Taxes."
Our projected annual effective tax ratesrate was (38.4 %) as of March 31, 2021 before discrete items were considered and represents an expected tax benefit. Discrete items increased our effective tax rate by 47.1% for the 2021 three-month period mainly due to the treatment of net realized investment gains. This discrete treatment of net realized investment gains of $8.0 million in our Corporate segment for the three months ended March 31, 2021 accounted for an increase of 19.8% in the effective tax rate. Our projected annual effective tax rate as of March 31, 2021 was different from the statutory federal income tax rate of 21%, see primarily due to the benefit we expect to recognize from the tax credits transferred to us from our tax credit partnership investments. For further discussion in the Segment Results - Corporate section that follows under the heading "Taxes."
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Operating Ratio
Our operating ratio is our combined ratio, less our investment income ratio. This ratio provides the combined effect of underwriting profitability and investment income. Our operating ratio for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 was as follows:
Three Months Ended March 31
20212020Change
Combined ratio110.0 %111.3 %(1.3  pts)
Less: investment income ratio8.0 %10.2 %(2.2  pts)
Operating ratio102.0 %101.1 %0.9  pts
 Three Months Ended September 30 Nine Months Ended September 30
 20202019Change 20202019Change
Combined ratio105.3%103.6%1.7 pts 115.8%106.8%9.0 pts
Less: investment income ratio8.7%11.0%(2.3 pts) 9.2%11.1%(1.9 pts)
Operating ratio96.6%92.6%4.0 pts 106.6%95.7%10.9 pts
ForOur operating ratio for the three and nine months ended September 30, 2020, our operating ratio increased by approximately 4.0 and 10.9 percentage points, respectively,March 31, 2021 as compared to the same periodsperiod of 2019. The increase in the operating ratio for the 2020 three-month period wasincreased approximately 0.9 percentage points driven by a lower investment income ratio, largely offset by a lower combined ratio in our Specialty P&C segment. The lower investment income ratio was primarily due to a decrease in our allocation to equities and lower yields on our short-term investments and corporate debt securities and short-term investments given the recent actions taken by the Federal Reserve in response to COVID-19.COVID-19 and, to a lesser extent, a decrease in our allocation to equities. The increase in the ratio for the 2020 three-month period also reflected a higher net losslower combined ratio in our Specialty P&C segment due to a lower amount of net favorable prior year reserve development recognized as compared towas driven by improvement in the same period of 2019, partially offset by a lower current accident year net loss ratio (seeprimarily due to our re-underwriting efforts and focus on rate adequacy. See previous discussion in this section under the heading "Expenses"). For the 2020 nine-month period, the increase in the operating ratio reflects the impact of the large national healthcare account's tail policy, the 2020 COVID-19 reserve and the 2019 E&O liability policy reserve, which collectively accounted for approximately 10.8 percentage points of the increase in the ratio (see previousfurther discussion in thisour Segment Operating Results - Specialty Property & Casualty section that follows under the heading "Expenses"). Excluding the impacts of these items, our operating ratio was relatively unchanged for the 2020 nine-month period as compared to the same period of 2019."Losses and Loss Adjustment Expenses."
ROE
ROE is calculated as annualized net income (loss) for the period divided by the average of beginning and ending shareholders’ equity. The goodwill impairment recognized during the third quarter of 2020 was not annualized in our calculation of ROE for the three and nine months ended September 30, 2020 as it is a non-recurring charge. See further discussion of the goodwill impairment under the heading "Goodwill / Intangibles" in the Critical Accounting Estimates section and Notes 1 and 5 of the Notes to Condensed Consolidated Financial Statements.This ratio measures our overall after-tax profitability and shows how efficiently capital is being used. ROE for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 was as follows:
Three Months Ended March 31
20212020Change
ROE2.3 %(6.0 %)8.3  pts
 Three Months Ended September 30 Nine Months Ended September 30
 20202019Change 20202019Change
ROE(8.8%)4.3%(13.1 pts) (14.1%)5.2%(19.3 pts)
Our ROE for the 2020 three- and nine-month periods primarily reflected a $161.1 million pre-tax goodwill impairment recognized related to the Specialty P&C reporting unit during the third quarter of 2020, which decreased our ROE by approximately 11.2 and 11.3 percentage points, respectively. Additionally, the decreaseThe increase in our ROE for the 2020 three- and nine-month periods2021 three-month period as compared to the same periodsperiod of 2019 reflected2020 was driven by the change in fair value of our equity portfolio and convertible securities, higher earnings from a decrease in our consolidated net investment incomefew LPS/LLCs and improved underwriting results (see previous discussion in this section under the heading "Revenues""Investments") and, for the 2020 three-month period, a higher net loss ratio in our Specialty P&C segment, as previously discussed. For the 2020 nine-month period, the decrease in our ROE

reflected a net underwriting loss of $45.7 million recognized during the second quarter of 2020 related to a tail policy for a large national healthcare account in our Specialty P&C segment, as previously discussed, and net realized investment losses in our Corporate segment driven by unrealized holding losses resulting from decreases in the fair value on our equity portfolio due to the volatility in the global financial markets related to COVID-19..
Book Value per Share
Book value per share is calculated as total shareholders’ equity at the balance sheet date divided by the total number of common shares outstanding. This ratio measures the net worth of the Company to shareholders on a per-shareper share basis. Our book value per share at September 30, 2020March 31, 2021 as compared to December 31, 20192020 is shown in the following table.
Book Value Per Share
Book Value Per Share at December 31, 2020$25.04
Increase (decrease) to book value per share during the three months ended March 31, 2021 attributable to:
Dividends declared(0.05)
Net income (loss)0.14
OCI(1)
(0.63)
Other(2)
(0.01)
Book Value Per Share at March 31, 2021$24.49
 Book Value Per Share
Book Value Per Share at December 31, 2019$28.11
Increase (decrease) to book value per share during the nine months ended September 30, 2020 attributable to: 
Dividends declared(0.41)
Net income (loss)(3.53)
OCI0.58
Other *(0.07)
Book Value Per Share at September 30, 2020$24.68
* Includes(1)Primarily the impact of cumulative effect adjustments relatedunrealized investment gains (losses) on our available-for-sale fixed maturity investments. See Note 11 of the Notes to ASUs adopted during 2020 andCondensed Consolidated Financial Statements for additional information.
(2)Includes the impact of share-based compensation.

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Non-GAAP Financial Measures
Non-GAAP operating income (loss) is a financial measure that is widely used to evaluate performance within the insurance sector. In calculating Non-GAAP operating income (loss), we have excluded the effects of the items listed in the following table that do not reflect normal results. We believe Non-GAAP operating income (loss) presents a useful view of the performance of our insurance operations, however it should be considered in conjunction with net income (loss) computed in accordance with GAAP.
The following table is a reconciliation of net income (loss) to Non-GAAP operating income (loss):
Three Months Ended
March 31
(In thousands, except per share data)20212020
Net income (loss)$7,735 $(21,954)
Items excluded in the calculation of Non-GAAP operating income (loss):
Net realized investment (gains) losses(8,849)28,673 
Net realized gains (losses) attributable to SPCs which no profit/loss is retained (1)
789 (2,498)
Transaction-related costs (2)
925 — 
Guaranty fund assessments (recoupments)4 (2)
Pre-tax effect of exclusions(7,131)26,173 
Tax effect, at 21% (3)
1,481 (5,365)
After-tax effect of exclusions(5,650)20,808 
Non-GAAP operating income (loss)$2,085 $(1,146)
Per diluted common share:
Net income (loss)$0.14 $(0.41)
Effect of exclusions(0.10)0.39 
Non-GAAP operating income (loss) per diluted common share$0.04 $(0.02)
(1) Net realized investment gains (losses) on investments related to SPCs are recognized in our Segregated Portfolio Cell Reinsurance segment. SPC results, including any realized gain or loss, that are attributable to external cell participants are reflected in the SPC dividend expense (income). To be consistent with our exclusion of net realized investment gains (losses) recognized in earnings, we are excluding the portion of net realized investment gains (losses) that is included in the SPC dividend expense (income) which is attributable to the external cell participants.
(2) Transaction-related costs associated with our acquisition of NORCAL. Given the significance of these transaction-related costs to the current period, we are excluding these costs as they do not reflect normal operating results and are unique and non-recurring in nature.
(3) The 21% rate is the annual expected statutory tax rate associated with the taxable or tax deductible items listed above. Our effective tax rate for the respective periods was applied to these items in calculating net income (loss), excluding net realized investment gains (losses) and related adjustments. Net realized investment gains (losses) in our Corporate segment are discrete items and are tax affected at the annual expected statutory tax rate (21%) in the period they are included in our consolidated tax provision and net income (loss). See previous discussion in this section under the heading "Taxes." The taxes associated with the net realized investment gains (losses) related to SPCs in our Segregated Portfolio Cell Reinsurance segment are paid by the individual SPCs and are not included in our consolidated tax provision or net income (loss); therefore, both the net realized investment gains (losses) from our Segregated Portfolio Cell Reinsurance segment and the adjustment to exclude the portion of net realized investment gains (losses) included in the SPC dividend expense (income) in the table above are not tax effected.

66
 Three Months Ended
September 30		 Nine Months Ended
September 30
(In thousands, except per share data)2020 2019 2020 2019
Net income (loss)$(149,979) $17,193
 $(190,032) $60,378
Items excluded in the calculation of Non-GAAP operating income (loss):       
Net realized investment (gains) losses(8,838) (1,134) (150) (47,064)
Net realized gains (losses) attributable to SPCs which no profit/loss is retained (1)
1,155
 (132) 732
 1,531
Goodwill impairment161,115
 —
 161,115
 —
Guaranty fund assessments (recoupments)88
 96
 114
 202
Pre-tax effect of exclusions153,520
 (1,170) 161,811
 (45,331)
Tax effect, at 21% (2)
(982) 246
 (2,808) 9,520
After-tax effect of exclusions152,538
 (924) 159,003
 (35,811)
Non-GAAP operating income (loss)$2,559
 $16,269
 $(31,029) $24,567
Per diluted common share:       
Net income (loss)$(2.78) $0.32
 $(3.53) $1.12
Effect of exclusions2.83
 (0.02) 2.95
 (0.66)
Non-GAAP operating income (loss) per diluted common share$0.05
 $0.30
 $(0.58) $0.46
(1) Net realized investment gains (losses) on investments related to SPCs are recognized in our Segregated Portfolio Cell Reinsurance segment. SPC results, including any realized gain or loss, that are attributable to external cell participants are reflected in the SPC dividend expense (income). To be consistent with our exclusion of net realized investment gains (losses) recognized in earnings, we are excluding the portion of net realized investment gains (losses) that is included in the SPC dividend expense (income) which is attributable to the external cell participants.
(2) The 21% rate is the annual expected statutory tax rate associated with the taxable or tax deductible items listed above. Our effective tax rate for the respective periods was applied to these items in calculating net income (loss), excluding the 2020 goodwill impairment loss and net realized investment gains (losses) and related adjustments. Net realized investment gains (losses) in our Corporate segment are discrete items and are tax affected at the annual expected statutory tax rate (21%) in the period they are included in our consolidated tax provision and net income (loss). See previous discussion in this section under the heading "Taxes." The taxes associated with the net realized investment gains (losses) related to SPCs in our Segregated Portfolio Cell Reinsurance segment are paid by the individual SPCs and are not included in our consolidated tax provision or net income (loss); therefore, both the net realized investment gains (losses) from our Segregated Portfolio Cell Reinsurance segment and the adjustment to exclude the portion of net realized investment gains (losses) included in the SPC dividend expense (income) in the table above are not tax effected. The 2020 goodwill impairment loss was treated as a discrete item in our consolidated tax provision and the portion that is tax deductible was tax affected at the annual expected statutory tax rate (21%). The remaining portion of the 2020 goodwill impairment loss is not tax deductible and therefore had no associated income tax benefit.

Table of Contents
Segment Results - Specialty Property & Casualty
Our Specialty P&C segment focuses on professional liability insurance and medical technology liability insurance as discussed in Note 1314 of the Notes to Condensed Consolidated Financial Statements. Segment results reflected pre-tax underwriting profit or loss from these insurance lines. Segment results included the following:
Three Months Ended March 31
($ in thousands)20212020Change
Net premiums written$121,313 $131,255 $(9,942)(7.6 %)
Net premiums earned$115,613 $120,359 $(4,746)(3.9 %)
Other income469 1,698 (1,229)(72.4 %)
Net losses and loss adjustment expenses(101,186)(110,931)9,745 (8.8 %)
Underwriting, policy acquisition and operating expenses(26,346)(29,585)3,239 (10.9 %)
Segment results$(11,450)$(18,459)$7,009 38.0 %
Net loss ratio87.5 %92.2 %(4.7 pts)
Underwriting expense ratio22.8 %24.6 %(1.8 pts)
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)20202019Change 20202019Change
Net premiums written$135,399
$141,299
$(5,900)(4.2%) $359,337
$393,210
$(33,873)(8.6%)
          
Net premiums earned$117,849
$125,237
$(7,388)(5.9%) $365,305
$375,315
$(10,010)(2.7%)
Other income726
1,858
(1,132)(60.9%) 3,515
4,536
(1,021)(22.5%)
Net losses and loss adjustment expenses(102,951)(107,573)4,622
(4.3%) (373,442)(321,248)(52,194)16.2%
Underwriting, policy acquisition and operating expenses(28,074)(29,700)1,626
(5.5%) (82,894)(89,177)6,283
(7.0%)
Segment results$(12,450)$(10,178)$(2,272)(22.3%) $(87,516)$(30,574)$(56,942)(186.2%)
          
Net loss ratio87.4%85.9%1.5 pts  102.2%85.6%16.6 pts 
Underwriting expense ratio23.8%23.7%0.1 pts  22.7%23.8%(1.1 pts) 
During the second quarter of 2020, a large national healthcare account did not renew on terms offered by us and exercised its contractual option to purchase extended reporting endorsement or "tail" coverage. As a result, we recognized a net underwriting loss of $45.7 million related to this policy within our Specialty P&C segment for the nine months ended September 30, 2020. Furthermore, during the second quarter of 2020, we established a $10 million reserve representing our best estimate of ultimate COVID-19 related losses based on currently available information. See further discussion that follows under the headings "Gross Premiums Written" and "Losses."
Premiums Written
Changes in our premium volume within our Specialty P&C segment are driven by four primary factors: (1) the amount of new business written, (2) our retention of existing business, (3) the premium charged for business that is renewed, which is affected by rates charged and by the amount and type of coverage an insured chooses to purchase and (4) the timing of premium written through multi-period policies. In addition, premium volume may periodically be affected by shifts in the timing of renewals between periods. The professional liability market, which accounts for a majority of the revenues in this segment, remains challenging as physicians continue joining hospitals or larger group practices and are thus no longer purchasing individual or group policies in the standard market. In addition, some competitors have chosen to compete primarily on price; both factors may impact our ability to write new business and retain existing business. Furthermore, the insurance and reinsurance markets have historically been cyclical, characterized by extended periods of intense price competition and other periods of reduced competition. The professional liability area has been particularly affected by these cycles. Underwriting cycles are generally driven by an excess of capacity available and actively pursuing business that is deemed profitable. Changes in the frequency and severity of losses may affect the cycles of the insurance and reinsurance markets significantly. During “soft markets” where price competition is high and underwriting profits are poor, growth and retention of business become challenging which may result in reduced premium volumes.
As a result of COVID-19, we continue to experience downward pressure on our premium volume resulting from new business disruptions. We have also experienced reductions in exposure due to insureds moving to part-time as a result of a general reduction in non-COVID-19 healthcare consumption and suspension of elective medical procedures. However, the length and magnitude of such changes depends on future developments, which are highly uncertain and cannot be predicted. In an effort to provide premium relief for insureds adversely impacted by the COVID-19 pandemic and to adjust for changes in exposures we granted premium credits totaling $0.4 million and $4.1 million during the three and nine months ended September 30, 2020, respectively.

Gross, ceded and net premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums written$138,289 $155,381 $(17,092)(11.0 %)
Less: Ceded premiums written16,976 24,126 (7,150)(29.6 %)
Net premiums written$121,313 $131,255 $(9,942)(7.6 %)
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 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)2020 2019 Change 2020 2019 Change
Gross premiums written$158,257
 $164,991
 $(6,734) (4.1%) $420,702
 $459,324
 $(38,622) (8.4%)
Less: Ceded premiums written22,858
 23,692
 (834) (3.5%) 61,365
 66,114
 (4,749) (7.2%)
Net premiums written$135,399
 $141,299
 $(5,900) (4.2%) $359,337
 $393,210
 $(33,873) (8.6%)
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Gross Premiums Written
During the second quarter of 2020, we reorganized our presentation of gross premiums written by component and related metrics below to better align with the current internal management reporting structure within the segment. All prior period information has been recast to conform to the current period presentation.
Gross premiums written by component were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Professional Liability
HCPL
Standard Physician(1)
Twelve month term$52,617 $56,918 $(4,301)(7.6 %)
Twenty-four month term— 7,366 (7,366)nm
Total Standard Physician52,617 64,284 (11,667)(18.1 %)
Specialty
Custom Physician(2)(10)
15,837 30,399 (14,562)(47.9 %)
Hospitals and Facilities(3)(10)
16,341 16,357 (16)(0.1 %)
Senior Care(4)(10)
5,041 3,885 1,156 29.8 %
Reinsurance (assumed)(5)
10,437 4,789 5,648 117.9 %
Total Specialty47,656 55,430 (7,774)(14.0 %)
Total HCPL100,273 119,714 (19,441)(16.2 %)
Small Business Unit(6)
22,766 22,901 (135)(0.6 %)
Tail Coverages(7)(10)
8,138 6,189 1,949 31.5 %
Total Professional Liability131,177 148,804 (17,627)(11.8 %)
Medical Technology Liability(8)
6,984 6,219 765 12.3 %
Other(9)
128 358 (230)(64.2 %)
Total$138,289 $155,381 $(17,092)(11.0 %)
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)2020 2019 Change 2020 2019 Change
Professional Liability               
HCPL               
Standard Physician(1)(10)
               
Twelve month term$72,641
 $71,353
 $1,288
 1.8% $168,950
 $174,257
 $(5,307) (3.0%)
Twenty-four month term—
 6,187
 (6,187) nm
 8,314
 23,054
 (14,740) (63.9%)
Total Standard physician72,641
 77,540
 (4,899) (6.3%) 177,264
 197,311
 (20,047) (10.2%)
Specialty    

 

     

 

Custom Physician(2)(10)
11,600
 10,515
 1,085
 10.3% 48,042
 62,310
 (14,268) (22.9%)
Hospitals and Facilities(3)(10)
14,610
 10,463
 4,147
 39.6% 40,543
 37,959
 2,584
 6.8%
Senior Care(4)(10)
1,485
 8,122
 (6,637) (81.7%) 5,589
 19,906
 (14,317) (71.9%)
Reinsurance (assumed)3,736
 1,485
 2,251
 151.6% 11,002
 8,663
 2,339
 27.0%
Loss portfolio transfers (retroactive)(5)
—
 900
 (900) nm
 —
 900
 (900) nm
Total Specialty31,431
 31,485
 (54) (0.2%) 105,176
 129,738
 (24,562) (18.9%)
Total HCPL104,072
 109,025
 (4,953) (4.5%) 282,440
 327,049
 (44,609) (13.6%)
Small Business Unit(6)
38,203
 39,349
 (1,146) (2.9%) 81,608
 87,493
 (5,885) (6.7%)
Tail Coverages(5)(7)
6,045
 7,237
 (1,192) (16.5%) 30,052
 16,418
 13,634
 83.0%
Total Professional Liability148,320
 155,611
 (7,291) (4.7%) 394,100
 430,960
 (36,860) (8.6%)
Medical Technology Liability(8)
9,822
 9,223
 599
 6.5% 25,926
 26,363
 (437) (1.7%)
Other(9)
115
 157
 (42) (26.8%) 676
 2,001
 (1,325) (66.2%)
Total$158,257
 $164,991
 $(6,734) (4.1%) $420,702
 $459,324
 $(38,622) (8.4%)
(1)
(1)Standard Physician premium was our greatest source of premium revenues in both 2021 and 2020 and is predominately comprised of twelve month term policies. The decrease in twelve month term policies during the 2021 three-month period was driven by retention losses, partially offset by the conversion of twenty-four month term policies, an increase in renewal pricing and, to a lesser extent, new business written. Renewal pricing increases in 2021 reflect the rising loss cost environment and new business written reflects general market conditions. Retention losses in 2021 were largely attributable to our targeted state strategy to reassess our greatest source of premium revenues in both 2020 and 2019 and is predominately comprised of twelve month term policies. The increase in twelve month term policies during the 2020 three-month period was driven by an increase in renewal pricing, conversion of twenty-four month term polices and, to a lesser extent, new business written, largely offset by retention losses. The decrease in twelve month term policies during the 2020 nine-month period was driven by retention losses and, to a lesser extent, premium credits granted as a result of the COVID-19 pandemic, partially offset by an increase in renewal pricing, conversion of twenty-four month term policies and, to a lesser extent, new business written. In addition, twelve month term policies during the 2020 three- and nine-month periods included adjustments related to loss sensitive policies which increased written and earned premium in the current period. For the 2020 three- and nine-month periods, renewal pricing increases reflect the rising loss cost environment and new business written reflects the impact of lower submissions as a result of the COVID-19 pandemic as well as general market conditions. The lower retention for the 2020 three- and nine-month periods is largely attributable to our focus on underwriting discipline as we continue to emphasize careful risk selection, rate adequacy, improved contract terms and a willingness to walk away from business that does not fit our goal of achieving a long-term underwriting profit. In addition, we have implemented a targeted state strategy to reassess our underwriting

appetite in certain unprofitable states which impacted our retention rate in the current period.states. We will continue to perform a detailed evaluation of venues, specialties and other areas to improve our underwriting results. These strategies resultedWe also continue to focus on underwriting discipline as we emphasize careful risk selection, rate adequacy, improved contract terms and a willingness to walk away from business that does not fit our goal of achieving a long-term underwriting profit. While retention in the current period has recovered somewhat from the impact of our non-renewal ofre-underwriting efforts over the past year and a few large policies totaling $2.7 million and $6.0 million during the 2020 three- and nine-month periods, respectively. We anticipate ahalf, it remains lower than our historical average levelfor this line of retention to persistbusiness as we continue to reevaluate certain states and books of business and set our rates to reflect our observations of higher severity trends. Retention losses during the 2021 three-month period also reflected the loss of two large policies totaling $1.4 million due to price competition. Standard Physician premium includesin the 2020 three-month period also included twenty-four month term premiums that were offered to physician insureds in one selected jurisdiction. The decrease in twenty-four month term premiums during the 2020 three- and nine-month periods primarily reflected the normal cycle of renewals (policies subject to renewal in 2020 were previously written in 2018, rather than in 2019). In addition, the decrease in twenty-four month term premiums during the 2020 three- and nine-month periods also reflected the majority of renewed policies converting to twelve-month term policies, as we haveWe ceased offering twenty-four month term policies beginning in the second quarter of 2020.2020, and the majority of the policies that were up for renewal in the current period were renewed to twelve month term policies; however, a portion of the premium from the 2020 three-month period reflected policies that will be subject to renewal and conversion in 2022.
(2)
(2) Custom Physician premium includes large complex physician groups, multi-state physician groups and non-standard physicians and is written primarily on an excess and surplus lines basis. The decrease in premium during the 2021 three-month period as compared to the same period of 2020 was driven by the mutual decision to dissolve our arrangement with CAPAssurance as a result of our acquisition of NORCAL, which resulted in the loss of a large program and two large policies in California totaling $10.2 million. The decrease in Custom Physician premium during the 2021 three-month period also reflected retention losses due to our focus on underwriting discipline as we continue to emphasize careful risk selection, rate adequacy, improved contract terms and a willingness to walk away from business that does not fit our goal
Custom Physician premium includes large complex physician groups, multi-state physician groups and non-standard physicians and is written primarily on an excess and surplus lines basis. The increase in premium during the 2020 three-month period was driven by the timing of the renewal of a $4.6 million policy between periods; this policy renewed in the third quarter of 2020 as compared to the fourth quarter of 2019. Excluding the effect of this timing difference, Custom Physician premium decreased $3.5 million during the 2020 three-month period as compared to the same period of 2019 primarily due to retention losses, partially offset by an increase in renewal pricing and, to a lesser extent, new business written. The decrease in premium during the 2020 nine-month period was driven by a large national healthcare account that did not renew on terms offered by us during the second quarter of 2020 which resulted in a $9.0 million decrease in Custom Physician premium; this account exercised its contractual option to purchase extended reporting endorsement or "tail" coverage (see further discussion in footnote 7 that follows). Excluding the effect of this policy, Custom Physician premium decreased $5.3 million during the 2020 nine-month period as compared to the same period of 2019 driven by retention losses, partially offset by an increase in renewal pricing, net timing differences of $3.3 million primarily related to the prior year renewal of certain policies and, to a lesser extent, new business written. For the 2020 three- and nine-month periods renewal pricing increases reflect the rising loss cost environment and new business written reflects the impact of lower submissions as a result of the COVID-19 pandemic as well as general market conditions. The lower retention in 2020 reflects our focus on underwriting discipline as we continue to emphasize careful risk selection, rate adequacy, improved contract terms and a willingness to walk away from business that does not fit our goal of achieving a long-term underwriting profit. The lower retention for the 2020 nine-month period also reflects the non-renewal of the aforementioned large national healthcare account, which resulted in a decrease to our Specialty retention rate of 6 percentage points. We anticipate retention rates to begin to normalize going forward as we have substantially completed our re-underwriting efforts as of the end of the third quarter of 2020.
(3)
Hospitals and Facilities premium (which includes hospitals, surgery centers and miscellaneous medical facilities) increased for the 2020 three- and nine-month periods as compared to the same periods in 2019 primarily due to new business written, including the addition of a $2.6 million policy during the current period, and, to a lesser extent, an increase in renewal pricing, partially offset by retention losses. For the 2020 three- and nine-month periods, renewal pricing increases reflect rate increases and contract modifications that we believe are appropriate given the current loss environment and new business written reflects lower submissions as a result of COVID-19 as well as general market conditions. Retention losses in the 2020 three- and nine-month periods were driven by our decision not to renew certain products and, for the 2020 nine-month period, the loss of one large policy totaling $2.7 million during the second quarter of 2020. As we have substantially completed our re-underwriting efforts on certain books of business as of the end of the third quarter of 2020, we anticipate retention rates to begin to normalize going forward.
(4)
Senior Care premium includes facilities specializing in long term residential care primarily for the elderly ranging from independent living through skilled nursing. Our Senior Care premium decreased for the 2020 three- and nine-month periods as compared to the same respective periods of 2019 primarily due to retention losses, partially offset by an increase in renewal pricing and, to a lesser extent, new business written. Retention losses in the 2020 three- and nine-month periods were driven by our decision not to renew certain classes of Senior Care business based on our expectations of poor loss performance, including our non-renewal of a $5.6 million policy in the current period. As of the end of the third quarter of 2020, we have completed our re-underwriting efforts on certain books of business and anticipate retention rates to begin to normalize going forward. Renewal pricing increases in 2020 reflect rate increases where we believe appropriate given the loss environment in this space.
(5)
We offer custom alternative risk solutions including loss portfolio transfers for healthcare entities who, most commonly, are exiting a line of business, changing an insurance approach or simply preferring to transfer risk. In the third quarter of 2019, we entered into a loss portfolio transfer with a regional hospital group which resulted in $0.9 million of retroactive premium written and fully earned in the 2019 three- and nine-month periods (see further discussion in footnote 7 that follows).

(6)
Our Small Business Unit is primarily comprised of premium associated with podiatrists, legal professionals, dentists and chiropractors. Our Small Business Unit premium decreased for the 2020 three- and nine-month periods as compared to the same respective periods of 2019 driven by retention losses and, for the 2020 nine-month period, reductions in exposure of $2.0 million primarily due to our insureds moving to part-time as a result of a general reduction in non-COVID-19 healthcare consumption, partially offset by an increase in renewal pricing and, to a lesser extent, new business written. The increase in renewal pricing was primarily the result of an increase in the rate charged for certain renewed policies in select states.
(7)
We offer extended reporting endorsement or "tail" coverage to insureds who discontinue their claims-made coverage with us, and we also periodically offer tail coverage through stand-alone policies. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. The amount of tail coverage premium written can vary significantly from period to period. The decrease in tail premium during the 2020 three-month period as compared to the same period of 2019 was driven by $1.8 million of tail coverage provided in connection with a loss portfolio transfer entered into during the third quarter of 2019, as previously discussed. The increase during the 2020 nine-month period was due to a large national healthcare account that exercised its contractual option to purchase tail coverage which resulted in $14.3 million of one-time premium written and fully earned in the second quarter of 2020, somewhat offset by the tail coverage provided in connection with the aforementioned third quarter 2019 loss portfolio transfer.
(8)
Our Medical Technology Liability business is marketed throughout the U.S.; coverage is typically offered on a primary basis, within specified limits, to manufacturers and distributors of medical technology and life sciences products including entities conducting human clinical trials. In addition to the previously listed factors that affect our premium volume, our Medical Technology Liability premium is impacted by the sales volume of insureds. The increase in premium during the 2020 three-month period was driven by new business written, partially offset by retention losses and, to a lesser extent, renewal pricing decreases. The decrease in premium during the 2020 nine-month period was primarily due to retention losses and, to a lesser extent, renewal pricing decreases, partially offset by new business written. For the 2020 three- and nine-month periods new business written reflects the addition of a few COVID-19 related policies. Retention losses in the 2020 three- and nine-month periods are primarily attributable to an increase in competition on terms and pricing. Renewal pricing decreases during the 2020 three- and nine-month periods are primarily due to changes in the sales volume of certain insureds, including changes in COVID-19 related exposure on several renewing policies.
(9)
This component of gross premiums written includes all other product lines within our Specialty P&C segment. The decrease during the 2020 nine-month period was due to the effect of our non-renewal of a $1.5 million specialty contractual liability policy.
(10)
Certain components of our gross premiums written include alternative market premiums. We currently cede either all or a portion of the alternative market premium, net of reinsurance, to three SPCs of our wholly owned Cayman Islands reinsurance subsidiaries, Inova Re and Eastern Re, which are reported in our Segregated Portfolio Cell Reinsurance segment (see further discussion in the Ceded Premiums Written section that follows). The portion not ceded to the SPCs is retained within our Specialty P&C segment.
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 Three Months Ended September 30 Nine Months Ended September 30
($ in millions)2020 2019 Change 2020 2019 Change
Standard Physician$—
 $—
 $—
 nm
 $1.6
 $1.4
 $0.2
 14.3%
Custom Physician—
 —
 —

nm
 0.1
 0.2
 (0.1)
(50.0%)
Hospitals and Facilities0.6
 —
 0.6
 nm
 0.7
 —
 0.7
 nm
Senior Care0.4
 0.7
 (0.3)
(42.9%) 4.2
 4.4
 (0.2)
(4.5%)
Total$1.0
 $0.7
 $0.3
 42.9% $6.6
 $6.0
 $0.6
 10.0%
of achieving a long-term underwriting profit, which resulted in the non-renewal of two large policies totaling $7.3 million. The decrease in Custom Physician premium was partially offset by new business written and, to a lesser extent, an increase in renewal pricing. Renewal pricing increases for the 2021 three-month period reflect the rising loss cost environment and new business written reflects general market conditions. The lower retention for the 2021 three-month period also reflects the aforementioned dissolution of our arrangement with CAPAssurance, which resulted in a decrease to our Specialty retention rate of 22.6 percentage points. We anticipate retention rates to begin to normalize going forward as we substantially completed our re-underwriting efforts as of the end of 2020, except for a large program that was renewed on a two-year term in 2019 that was carefully evaluated and subsequently non-renewed in the current quarter, as previously discussed.
(3) Hospitals and Facilities premium (which includes hospitals, surgery centers and miscellaneous medical facilities) was relatively unchanged during the 2021 three-month period as compared to the same period of 2020 as retention losses were almost entirely offset by new business written, an increase in renewal pricing and, to a lesser extent, net timing differences of $0.5 million. Renewal pricing increases for the 2021 three-month period reflect rate increases and contract modifications that we believe are appropriate given the current loss environment, and new business written reflects general market conditions. Retention losses in the 2021 three-month period were driven by our decision not to renew certain products. As we substantially completed our re-underwriting efforts on certain books of business as of the end of the third quarter of 2020, retention rates have started to normalize.
(4) Senior Care premium includes facilities specializing in long term residential care primarily for the elderly ranging from independent living through skilled nursing. Our Senior Care premium increased for the 2021 three-month period as compared to the same period of 2020 driven by renewal pricing increases and, to a lesser extent, new business written, partially offset by retention losses. The increase in renewal pricing in 2021 was primarily the result of an increase in the rate charged for certain renewed policies in select states. Retention losses in the 2021 three-month period were driven by our decision not to renew certain classes of Senior Care business based on our expectations of poor loss performance. As we completed our re-underwriting efforts on certain books of business during the third quarter of 2020, retention rates have started to normalize.
(5) We offer custom alternative risk solutions including assumed reinsurance. The increase in premium during the 2021 three-month period reflected an assumed reinsurance arrangement with a regional hospital group entered into during the current period, which resulted in $4.5 million of premium written, comprised of $2.3 million of retroactive premium written and fully earned and $2.2 million of prospective premium written. See Note 4 of the Notes to Condensed Consolidated Financial Statements for further information on this transaction. Our custom alternative risk solutions also include premiums assumed on a quota share basis through a strategic partnership since 2016 with an international medical professional liability insurer. For 2021, we increased our participation in the original program and entered into another program with this insurer in a new international territory. Thus, we anticipate the volume of premium assumed through this partnership will grow going forward.
(6) Our Small Business Unit is primarily comprised of premium associated with podiatrists, legal professionals, dentists and chiropractors. Our Small Business Unit premium was relatively unchanged for the 2021 three-month period as compared to the same period of 2020 as retention losses were largely offset by new business written and, to a lesser extent, an increase in renewal pricing. The increase in renewal pricing in 2021 was primarily the result of an increase in the rate charged for certain renewed policies in select states.
(7) We offer extended reporting endorsement or "tail" coverage to insureds who discontinue their claims-made coverage with us, and we also periodically offer tail coverage through stand-alone policies. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. The amount of tail coverage premium written can vary significantly from period to period. The increase during the 2021 three-month period as compared to the same period of 2020 was primarily due to two large tail policies written and fully earned in the current period totaling $2.1 million.
(8) Our Medical Technology Liability business is marketed throughout the U.S.; coverage is typically offered on a primary basis, within specified limits, to manufacturers and distributors of medical technology and life sciences products including entities conducting human clinical trials. In addition to the previously listed factors that affect our premium volume, our Medical Technology Liability premium is impacted by the sales volume of insureds. Our Medical Technology Liability premium increased during the 2021 three-month period as compared to the same period of 2020 due to new business written, including the addition of a few large policies totaling $1.1 million, partially offset by retention losses and, to a lesser extent, renewal pricing decreases. Retention losses in the 2021 three-month period are primarily attributable to an increase in competition on terms and pricing. Renewal pricing decreases during the 2021 three-month period are primarily due to changes in the sales volume of certain insureds, including changes in exposure on several renewing policies.
(9) This component of gross premiums written includes all other product lines within our Specialty P&C segment.
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(10) Certain components of our gross premiums written include alternative market premiums. We currently cede either all or a portion of the alternative market premium, net of reinsurance, to three SPCs of our wholly owned Cayman Islands reinsurance subsidiaries, Inova Re and Eastern Re, which are reported in our Segregated Portfolio Cell Reinsurance segment (see further discussion in the Ceded Premiums Written section that follows). The portion not ceded to the SPCs is retained within our Specialty P&C segment.
Three Months Ended March 31
($ in millions)20212020Change
Custom Physician$— $0.1 $(0.1)nm
Hospitals and Facilities— 0.1 (0.1)nm
Senior Care4.2 3.6 0.6 16.7 %
Tail Coverages0.3 — 0.3 nm
Total$4.5 $3.8 $0.7 18.4 %
Alternative market gross premiums written remained relatively unchangedincreased during the 2020 three- and nine-month periods2021 three-month period as compared to the same periodsperiod of 2019.

2020 driven by renewal pricing increases, primarily due to an increase in the rate charged for one program and, to a lesser extent, the addition of a tail policy.
We are committed to a rate structure that will allow us to fulfill our obligations to our insureds, while generating competitive long-term returns for our shareholders. Our pricing continues to be based on expected losses as indicated by our historical loss data and available industry loss data. In recent years, this practice has resulted in gradual rate increases and we anticipate further rate increases due to indications of increasing loss severity. Additionally, the pricing of our business includes the effects of filed rates, surcharges and discounts. Renewal pricing also reflects changes in our exposure base, deductibles, self-insurance retention limits and other policy terms and conditions.
The change in renewal pricing for our Specialty P&C segment, including by major component, was as follows:
 Three Months Ended
September 30		 Nine Months Ended
September 30
 2020 2020
Specialty P&C segment8% 10%
HCPL   
Standard Physician(1)
10% 11%
Specialty(1)
14% 17%
Total HCPL11% 13%
Small Business Unit(1)
5% 4%
Medical Technology Liability(1)
(1%) (2%)
(1) See Gross Premiums Written section for further explanation of changes in renewal pricing.
Three Months Ended
March 31
2021
Specialty P&C segment6%
HCPL
Standard Physician(1)
6%
Specialty(1)
8%
Total HCPL6%
Small Business Unit(1)
4%
Medical Technology Liability(1)
(2%)
(1) See Gross Premiums Written section for further explanation of changes in renewal pricing.
New business written by major component on a direct basis was as follows:
Three Months Ended
March 31
(In millions)20212020
HCPL
Standard Physician$0.6 $0.6 
Specialty8.7 1.9 
Total HCPL9.3 2.5 
Small Business Unit1.0 1.2 
Medical Technology Liability1.8 0.7 
Total$12.1 $4.4 
70
 Three Months Ended
September 30		 Nine Months Ended
September 30
(In millions)2020 2019 2020 2019
HCPL       
Standard Physician$1.1
 $1.9
 $2.1
 $8.2
Specialty4.2
 4.6
 7.2
 22.8
Total HCPL5.3
 6.5
 9.3
 31.0
Small Business Unit1.4
 1.2
 3.7
 3.5
Medical Technology Liability2.0
 1.3
 4.7
 3.5
Total$8.7
 $9.0
 $17.7
 $38.0
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For our Specialty P&C segment, we calculate retention as annualized renewed premium divided by all annualized premium subject to renewal. Retention is affected by a number of factors. We may lose insureds to competitors or to alternative insurance mechanisms such as risk retention groups or self-insurance entities (often when physicians join hospitals or large group practices) or due to pricing or other issues. We may choose not to renew an insured as a result of our underwriting evaluation. Insureds may also terminate coverage because they have left the practice of medicine for various reasons, principally for retirement, death or disability, but also for personal reasons.
Retention for our Specialty P&C segment, including by major component, was as follows:
 Three Months Ended
September 30		 Nine Months Ended
September 30
 2020 2019 2020 2019
Specialty P&C segment81% 86% 78% 87%
HCPL       
Standard Physician(1)
85% 87% 82% 88%
Specialty(1)
55% 69% 59% 81%
Total HCPL76% 82% 74% 86%
Small Business Unit92% 93% 90% 92%
Medical Technology Liability85% 85% 84% 85%
(1) See Gross Premiums Written section for further explanation of retention decline in 2020.

Three Months Ended
March 31
20212020
Specialty P&C segment77 %81 %
HCPL
Standard Physician86 %80 %
Specialty(1)
56 %82 %
Total HCPL73 %81 %
Small Business Unit91 %85 %
Medical Technology Liability87 %78 %
(1) See Gross Premiums Written section for further explanation of retention decline in 2021.
Ceded Premiums Written
Ceded premiums represent the amounts owed to our reinsurers for their assumption of a portion of our losses. For our HCPL and Medical Technology Liability excess of loss reinsurance arrangements in effect prior to October 1, 2020, we generally retained the first $1 million in risk insured by us and ceded coverages in excess of this amount. Effective October 1, 2020, we will generally retain the first $2 million in risk insured by us and cede coverages in excess of this amount. For our HCPL coverages, we will also retain from 0% to 14.5% of the next $24 million of risk for coverages in excess of $2 million. For our Medical Technology Liability treaty which also renewed effective October 1, 2020, we will also retain 2.5% of the next $8 million of risk for coverages in excess of $2 million. These changes in terms for both our HCPL and Medical Technology Liability treaties resulted in a reduction to the gross rate paid for the treaty year effective October 1, 2020. We pay our reinsurers a ceding premium in exchange for their accepting the risk, and in certain of our excess of loss arrangements, the ultimate amount of which is determined by the loss experience of the business ceded, subject to certain minimum and maximum amounts.
Given the length of time that it takes to resolve our claims, many years may elapse before all losses recoverable under a reinsurance arrangement are known. As a part of the process of estimating our loss reserve we also make estimates regarding the amounts recoverable under our reinsurance arrangements. As a result, we may have an adjustment to our estimate of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. Any changes to estimates of premiums ceded related to prior accident years are fully earned in the period the changes in estimates occur.
Ceded premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Excess of loss reinsurance arrangements (1)
$7,678 $8,617 $(939)(10.9 %)
Other shared risk arrangements (2)
3,963 10,864 (6,901)(63.5 %)
Premium ceded to SPCs (3)
4,469 3,784 685 18.1 %
Other ceded premiums written866 861 5 0.6 %
Total ceded premiums written$16,976 $24,126 $(7,150)(29.6 %)
(1) We generally reinsure risks under our excess of loss reinsurance arrangements pursuant to which the reinsurers agree to assume all or a portion of all risks that we insure above our individual risk retention levels, up to the maximum individual limits offered. Premium due to reinsurers also fluctuates with the volume of written premium subject to cession under the arrangement. In certain of our excess of loss reinsurance arrangements, the premium due to the reinsurer is determined by the loss experience of that business reinsured, subject to certain minimum and maximum amounts. The decrease in ceded premiums written under our excess of loss reinsurance arrangements during the 2021 three-month period as compared to
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 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)20202019Change 20202019Change
Excess of loss reinsurance arrangements (1)
$9,351
$9,580
$(229)(2.4%) $26,079
$27,562
$(1,483)(5.4%)
Other shared risk arrangements (2)
11,784
12,703
(919)(7.2%) 26,962
30,556
(3,594)(11.8%)
Premium ceded to SPCs (3)
876
575
301
52.3% 5,958
5,465
493
9.0%
Other ceded premiums written847
834
13
1.6% 2,366
2,531
(165)(6.5%)
Total ceded premiums written$22,858
$23,692
$(834)(3.5%) $61,365
$66,114
$(4,749)(7.2%)
(1)
We generally reinsure risks under our excess of loss reinsurance arrangements pursuant to which the reinsurers agree to assume all or a portion of all risks that we insure above our individual risk retention levels, up to the maximum individual limits offered. Premium due to reinsurers also fluctuates with the volume of written premium subject to cession under the arrangement. In certain of our excess of loss reinsurance arrangements, the premium due to the reinsurer is determined by the loss experience of that business reinsured, subject to certain minimum and maximum amounts. Premium ceded under our excess of loss reinsurance arrangements during the 2020 three-month period remained relatively unchanged as compared to the same period of 2019. The decrease in ceded premiums written under our excess of loss reinsurance arrangements during the 2020 nine-month period as compared to the same period of 2019 primarily reflected a decrease in the overall volume of gross premiums written subject to cession and, to a lesser extent, certain of our reinsurance arrangements reaching maximum limits eligible for cession on treaty years effective October 1, 2017 and 2018. The decrease in ceded premiums written during the 2020 nine-month period was partially offset by the effect of changes to both minimum and maximum limits for the treaty year effective October 1, 2019.
(2)
We have entered into various shared risk arrangements, including quota share, fronting, and captive arrangements, with certain large healthcare systems and other insurance entities. These arrangements include our Ascension Health and CAPAssurance programs. While we cede a large portion of the premium written under these arrangements, they provide us an opportunity to grow net premium through strategic partnerships. Effective October 1, 2020, our arrangement with CAPAssurance was mutually dissolved as a result of our pending acquisition with NORCAL and their concentration in the state of California. The decrease in ceded premiums written under our shared risk arrangements during the 2020 three- and nine-month periods as compared to the same respective periods of 2019 was primarily due to a decrease in premium ceded to our Ascension Health program and our non-renewal of two large policies in certain of our other shared risk arrangements during the current period, partially offset by growth in our CAPAssurance program.
(3)
As previously discussed, as a part of our alternative market solutions, all or a portion of certain healthcare premium written is ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. See the Segment Results - Segregated Portfolio Cell Reinsurance section for further discussion on the cession to the SPCs from our Specialty

the same period of 2020 primarily reflected a decrease in the overall volume of gross premiums written subject to cession and, to a lesser extent, the reduced rate on the treaty year effective October 1, 2020.
(2) We have entered into various shared risk arrangements, including quota share, fronting, and captive arrangements, with certain large healthcare systems and other insurance entities. While we cede a large portion of the premium written under these arrangements, they provide us an opportunity to grow net premium through strategic partnerships. These arrangements include our Ascension Health program and, prior to the fourth quarter of 2020, our CAPAssurance program. Our CAPAssurance program was mutually dissolved on October 1, 2020 as a result of our acquisition of NORCAL and their concentration in the state of California. In addition, we entered into a new shared risk arrangement with a regional hospital group during the current period. The decrease in ceded premiums written under our shared risk arrangements during the 2021 three-month period as compared to the same period of 2020 was primarily due to the aforementioned dissolution of our arrangement with CAPAssurance, our non-renewal of two large policies in certain of our other shared risk arrangements effective May 1, 2020 and, to a lesser extent, a decrease in premium ceded to our Ascension Health program, somewhat offset by the premium ceded under our new shared risk arrangement, as previously discussed.
(3) As previously discussed, as a part of our alternative market solutions, all or a portion of certain healthcare premium written is ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. See the Segment Results - Segregated Portfolio Cell Reinsurance section for further discussion on the cession to the SPCs from our Specialty P&C segment. PremiumsThe increase in premiums ceded to SPCs during the 2020 three- and nine-month periods remained relatively unchanged2021 three-month period as compared to the same periodsperiod of 2019.2020 was driven by renewal pricing increases (see discussion in footnote 10 under the heading "Gross Premiums Written").
Ceded Premiums Ratio
The ceded premiums ratios wereratio was as follows:
Three Months Ended March 31
 20212020Change
Ceded premiums ratio12.3%15.5%(3.2 pts)
 Three Months Ended September 30 Nine Months Ended September 30
 2020 2019 Change 2020 2019 Change
Ceded premiums ratio14.4% 14.4% — 14.6% 14.4% 0.2 pts
For the 2020 three- and nine-month periodsThe decrease in the ceded premiums ratio during the 2021 three-month period was relatively unchanged as comparedprimarily due to a decrease in premiums ceded under our shared risk arrangements and, to a lesser extent, the same periodseffect of 2019.the aforementioned assumed reinsurance program entered into during the current period with a regional hospital group (increase in gross premiums written with no premium ceded). See further discussion on the assumed reinsurance program in footnote 5 under the heading "Gross Premiums Written" and additional discussion on our shared risk arrangements above under the heading "Ceded Premiums Written."
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to our reinsurers for their assumption of a portion of our losses. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Generally, our policies carry a term of one year; however, prior to the third quarter of 2020, we wrote certain Standard Physician policies with a twenty-four month term, and a few of our Medical Technology Liability policies have a multi-year term. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. Retroactive coverage premiums are 100% earned at the inception of the contract, as all of the associated underlying loss events occurred in the past. Additionally, any ceded premium changes due to changes to estimates of premiums owed under reinsurance agreements for prior accident years are fully earned in the period of change.
Net premiums earned were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums earned$132,060 $139,023 $(6,963)(5.0 %)
Less: Ceded premiums earned16,447 18,664 (2,217)(11.9 %)
Net premiums earned$115,613 $120,359 $(4,746)(3.9 %)
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)2020 2019 Change 2020 2019 Change
Gross premiums earned$137,044
 $146,514
 $(9,470) (6.5%) $421,614
 $434,699
 $(13,085) (3.0%)
Less: Ceded premiums earned19,195
 21,277
 (2,082) (9.8%) 56,309
 59,384
 (3,075) (5.2%)
Net premiums earned$117,849
 $125,237
 $(7,388) (5.9%) $365,305
 $375,315
 $(10,010) (2.7%)
The decrease in grossGross premiums earned during the 2020 three-2021 three-month period included $2.3 million of retroactive premium written and nine-month periodsfully earned associated with an assumed reinsurance program (see previous discussion in footnote 5 under the heading "Gross Premiums Written"). After removing the impact of the retroactive premium, gross premiums earned decreased $9.3 million during the 2021 three-month period as compared to the same periodsperiod of 2019 was2020 driven by the pro rata effect of a decrease in the volume of written premium during the preceding twelve months, predominantly in our Specialty line of business, due to our re-underwriting efforts. Forre-
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underwriting efforts and, to a lesser extent, the 2020 three- and nine-month periods, the decrease in gross premiums earned also reflects the effectdissolution of a prior year loss portfolio transfer which resulted in $2.7 million of one-time premiumour arrangement with CAPAssurance, partially offset by two large tail policies written and fully earned in the third quarter of 2019 (see previous discussion in footnotes 5 and 7 under the heading "Gross Premiums Written"). The decrease in gross premiums earned in both the 2020 three- and nine-month periods was somewhat offset by premium adjustments related to loss sensitive policies which increased earned premium by $2.3 million and $2.6 million for the 2020 three- and nine-month periods, respectively, and decreased earned premium by $1.6 million for each of the 2019 three- and nine-month periods. In addition, the decrease in gross premiums earned for the 2020 nine-month period was largely offset by $14.3 million of one-time premium written and fully earned in the second quarter of 2020 associated with the tail coverage purchased by a large national healthcare account (see previous discussion in footnote 7 under the heading "Gross Premiums Written").current period.
The decrease in ceded premiums earned during both the 2020 three- and nine-month periods2021 three-month period as compared to the same periodsperiod of 20192020 was driven by the pro rata effect of a decrease in premium ceded under our shared risk and excess of loss arrangements during the preceding twelve months.

Losses and Loss Adjustment Expenses
The determination of calendar year losses involves the actuarial evaluation of incurred losses for the current accident year and the actuarial re-evaluation of incurred losses for prior accident years, including an evaluation of the reserve amounts required for ECO/XPL losses. As part of the review of our prior accident year reserves, we also make estimates of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. This analysis may result in reductions to estimates of premiums owed under reinsurance agreements for prior accident years which impacts net premiums earned (the denominator of the net loss ratio) in the period the adjustment is made; no such adjustments were made during the three and nine months ended September 30, 2020March 31, 2021 or 2019.2020. See previous discussion under the heading "Ceded Premiums Written" for additional information.
Accident year refers to the accounting period in which the insured event becomes a liability of the insurer. For claims-made policies, which represent the majority of the premiums written in our Specialty P&C segment, the insured event generally becomes a liability when the event is first reported to us. For occurrence policies, the insured event becomes a liability when the event takes place. For retroactive coverages, the insured event becomes a liability at inception of the underlying contract. We believe that measuring losses on an accident year basis is the best measure of the underlying profitability of the premiums earned in that period, since it associates policy premiums earned with the estimate of the losses incurred related to those policy premiums.
The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years.
The net loss ratios for our Specialty P&C segment were as follows:
Net Loss Ratios (1)
Three Months Ended March 31
20212020Change
Calendar year net loss ratio87.5 %92.2 %(4.7  pts)
Less impact of prior accident years on the net loss ratio(2.3 %)(2.0 %)(0.3  pts)
Current accident year net loss ratio(2)
89.8 %94.2 %(4.4  pts)
 
Net Loss Ratios (1)
 Three Months Ended September 30 Nine Months Ended September 30
 2020 2019 Change 2020 2019 Change
Calendar year net loss ratio87.4% 85.9% 1.5 pts 102.2% 85.6% 16.6 pts
Less impact of prior accident years on the net loss ratio(2.4%) (8.6%) 6.2 pts (5.7%) (8.3%) 2.6 pts
Current accident year net loss ratio (2)
89.8% 94.5% (4.7 pts) 107.9% 93.9% 14.0 pts
(1)(1)Net losses, as specified, divided by net premiums earned.
Net losses, as specified, divided by net premiums earned.
(2)
The current accident year net loss ratio (as shown in the table above) decreased 4.7 percentage points for the 2020 three-month period and increased 14.0 percentage points for the 2020 nine-month period as compared to the same respective periods of 2019 primarily attributable to the following:
(In percentage points)Increase (Decrease), 2020 versus 2019
Comparative
three-month
period
Comparative
nine-month
period
Estimated ratio increase (decrease) attributable to:
Premium adjustments on loss sensitive policies(3.0 pts)(1.2 pts)
Large national healthcare account tail policy—12.8 pts
COVID-19 reserve—2.9 pts
All other, net(1.7 pts)(0.5 pts)
Increase (decrease) in the current accident year net loss ratio(4.7 pts)14.0 pts
Our current accident year net loss ratio for the 2020 three- and nine-month periods was impacted by changes in premium adjustments related to loss sensitive policies which accounted for approximately 3.0 and 1.2 percentage points, respectively, of the decrease in the ratio as compared to the same periods of 2019 (see previous discussion under the heading "Net Premiums Earned"). (2)For the 2020 nine-month period,three months ended March 31, 2021, our current accident year net loss ratio was also impacted by a tail policy purchased by a large national healthcare account and a COVID-19 reserve. Duringimproved 4.4 percentage points as compared to the second quartersame period of 2020 a large national healthcare account exercised its contractual option to purchase the extended reporting endorsement or "tail" coverage, resulting in a net underwriting loss of $45.7 million which accounted for 12.8 percentage points of the increase in our current accident year net loss ratio for the 2020 nine-month period. Also during the second quarter of 2020, we established a $10 million reserve for COVID-19; no adjustment was made to this reserve during the three months ended September 30, 2020. This reserve represents our best estimate of ultimate COVID-19 related losses based on currently available information and reported incidents, and accounted for 2.9 percentage points of the increase in our current accident year net loss ratio for the 2020 nine-month period. The remaining change in our current accident year net loss ratio for the 2020 three- and nine-month periods, as shown in the table above, primarily reflected

the impact ofdriven by decreases to certain loss ratios during the second quarter of 2020current period in our Standard Physician and Small Business UnitSpecialty lines of business as a resultwe continue to recognize the beneficial impacts of our re-underwriting efforts and focus on rate adequacy. For the 2020 nine-month period, this impact was partially offset by higher severity trends in our HCPL book of business, particularly in our Specialty lines, as compared to what was reflected in our loss ratios during the first nine months of 2019. We reflected higher severity trends in our estimates of losses at the end of 2019; however, the current accident year net loss ratio for the first nine months of 2020, excluding the large national healthcare account tail policy and the COVID-19 reserve, is approximately 6.5 percentage points lower as compared to the current accident year net loss ratio for the full year of 2019, excluding the 2019 impact of the large national healthcare account, due to our re-underwriting efforts.
We re-evaluate our previously established reserve each quarter based upon the most recently completed actuarial analysis supplemented by any new analysis, information or trends that have emerged since the date of that study. We also take into account currently available industry trend information. We continue to see elevated loss severity in the broader medical professional liability industry and are observing early indications of these increased severity trends in our paid loss data. Furthermore, there remain uncertainties around the impact that the COVID-19 pandemic will ultimately have on variables such as premium volume, claims frequency and severity, historical paid and incurred loss trends, general economic and social trends, inflation and the legal and political environment. While we have established a reserve for COVID-19 related losses, we have also observed a significant reduction in claims frequency as compared to 2019,in 2020 that has continued into 2021, some of which is likely associated with the COVID-19 pandemic andincluding the disruption of the court systems; however, we have remainedcontinue to remain cautious in recognizing these favorable frequency trends in our current accident year reserve due to the possibility of delays in reporting and uncertainty surrounding the length and severity of the pandemic.
We recognized net favorable lossprior year reserve development related to our previously established reserves of $2.9$2.7 million and $20.7$2.4 million duringfor the three and nine months ended September 30,March 31, 2021 and 2020, respectively, as compared to $10.8 million and $31.0 million during the same respective periods of 2019. Prior accident year developmentrespectively. Development recognized during the three and nine months ended September 30,March 31, 2021 principally related to accident years 2017 and 2018. Prior accident year reserve development recognized for the three months ended March 31, 2020 includedwas due to a reduction in our reserve for potential ECO/XPL claimsclaims; prior accident year development recognized in the current period included a reduction to this same reserve of $0.4 million and $3.2 million, respectively, as compared to $0.6 million and $1.0 million during the same respective periods of 2019. Development recognized during the three and nine months ended September 30, 2020 principally related to accident years 2014 through 2018. Development recognized during the three and nine months ended September 30, 2019 principally related to accident years 2012 through 2015.$0.2 million.
A detailed discussion of factors influencing our recognition of loss development is included in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses" and in our December 31, 20192020 report on Form 10-K under the same heading. Assumptions used in establishing our reserve are regularly reviewed and updated by management as new data becomes available. Any adjustments necessary are reflected in the then current operations. Due to the
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size of our reserve, even a small percentage adjustment to the assumptions can have a material effect on our results of operations for the period in which the change is made, as was the case in both 20202021 and 2019.2020.
Underwriting, Policy Acquisition and Operating Expenses
Our Specialty P&C segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
($ in thousands)2020 2019 Change 2020 2019 Change($ in thousands)20212020Change
DPAC amortization$13,101
 $13,733
 $(632) (4.6%) $40,652
 $42,268
 $(1,616) (3.8%)DPAC amortization$12,396 $13,916 $(1,520)(10.9 %)
Management fees1,838
 1,925
 (87) (4.5%) 4,928
 5,365
 (437) (8.1%)Management fees1,001 1,832 (831)(45.4 %)
Other underwriting and operating expenses13,135
 14,042
 (907) (6.5%) 37,314
 41,544
 (4,230) (10.2%)Other underwriting and operating expenses12,949 13,837 (888)(6.4 %)
Total$28,074
 $29,700
 $(1,626) (5.5%) $82,894
 $89,177
 $(6,283) (7.0%)Total$26,346 $29,585 $(3,239)(10.9 %)
DPAC amortization decreased for the three and nine months ended September 30, 2020March 31, 2021 as compared to the same respective periodsperiod of 20192020 driven by a decrease in earned premium, excluding the effect of the premium earned from the tail coverage associated with a large national healthcare account from the second quarter of 2020 as there were no deferred acquisition costs associated with the tail premium (see discussion under the heading "Gross Premiums Written").premium. In addition, the decrease in DPAC amortization during the 2020 three- and nine-month periods2021 three-month period reflected a decrease in brokeragecompensation-related expenses due to our non-renewal of certain products written on an excess and surplus lines basisdriven by a reduction in our Specialty line of business (see discussion under the heading "Gross Premiums Written") as wellheadcount as a decrease in agent commissions and premium taxes due to a lower volumeresult of premium written.the 2020 organizational restructuring. Partially offsetting the decrease in DPAC amortization for both the 2020 three- and nine-month periods2021 three-month period was a decrease in ceding commission income, which is an offset to expense, from certain of our shared risk arrangements, an increase in medical costs associated with employee health plans and, to a lesser extent, one-time employee severance charges of $0.3 million and $0.6 million, respectively.arrangements.
Management fees are charged pursuant to a management agreement by the Corporate segment to the operating subsidiaries within our Specialty P&C segment for services provided based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. While the terms of the management agreement were consistent between 2020 and 2019, fluctuationsFluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period. Due to organizational structure enhancements in our Specialty P&C segment during 2020, the extent to which services are provided by the Corporate segment to the operating subsidiaries within the segment decreased effective January 1, 2021. Accordingly, we reduced the fee charged to the segment's operating subsidiaries during the 2021 three-month period.
Other underwriting and operating expenses decreased during the 2020 three- and nine-month periods2021 three-month period as compared to the same respective periodsperiod of 20192020 driven by a decrease in various operationaldecreased operating expenses resulting from incremental improvementsthe operational and structural changes implemented over the past year including organizational structure enhancements and improveda half. The decrease in operating efficiencies, as well as a reduction in travel-related costs of $1.1 million and $2.2 millionexpenses during the 2020 three- and nine-month periods, respectively, as a result2021 three-month period also reflected the effect of the COVID-19 pandemic. The decrease$1.4 million of one-time expenses incurred during the 2020 three- and nine-month periods was largely offset by one-time expenses of $1.5 million and $3.4 million, respectively. One-time expenses in both the 2020 three- and nine-month periods were mainly comprised of early retirement benefits grantedprior year period primarily related to certain employees during the third quarter of 2020. The remaining one-time costs were primarily expenses associated with the restructuring of our HCPL field office organization

largely during and, to a lesser extent, a decrease in employer contributions to the first halfProAssurance Savings Plan in the current period (see Note 17 of the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K). The remaining variance in other underwriting and operating expenses for the 2021 three-month period as compared to the same period of 2020 consistingwas comprised of employee severance charges and lease exit costs due to a reduction in physical office locations.individually insignificant components.
Underwriting Expense Ratio (the Expense Ratio)
Our expense ratio for the Specialty P&C segment for the three and nine months ended September 30, 2020 and 2019, respectively, was as follows:
 Three Months Ended September 30 Nine Months Ended September 30
 2020 2019 Change 2020 2019 Change
Underwriting expense ratio23.8% 23.7% 0.1 22.7% 23.8% (1.1 pts)
 Three Months Ended March 31
 20212020Change
Underwriting expense ratio22.8 %24.6 %(1.8  pts)
The change in ourunderwriting expense ratio for bothin the 2020 three- and nine-month periods as compared tocurrent period also included the same respective periodseffect of 2019 was primarily attributable toone-time retroactive premium earned associated with a new assumed reinsurance program (net premiums earned with no associated operating expenses). Excluding the following:
(In percentage points)Increase (Decrease), 2020 versus 2019
Comparative
three-month
period
Comparative
nine-month
period
Estimated ratio increase (decrease) attributable to:
Decrease in net premiums earned and DPAC amortization(1)
0.6 pts1.0 pts
One-time expenses1.6 pts1.1 pts
Travel-related cost savings due to COVID-19(0.9 pts)(0.6 pts)
Large national healthcare account tail policyimpact of the retroactive premium,(2)
— pts(0.9 pts)
All other, net(1.2 pts)(1.7 pts)
Increase (decrease) in the underwriting expense ratio0.1 pts(1.1 pts)
(1) Excludes the large national healthcare account tail policy premium in 2020 and certain one-time expenses included in DPAC amortization of $0.3 million and $0.6 million in the three and nine-months ended September 30, 2020, respectively.
(2) See previous discussion under the heading "Gross Premiums Written"
The remaining decrease in our expense ratio for the 2020 three- and nine-month periods of 1.2 and 1.7 percentage points, respectively, primarily reflected2021 three-month period was 23.2% which reflects the impact of a reduction to the management fee charged by the Corporate segment, as previously discussed, as well as a decrease in various operational expenses resulting from incremental improvements over the past year including organizational structure enhancements and improved operating efficiencies. The underwriting expense ratio for the three months ended March 31, 2020 also reflected the effect of one-time expenses related to our HCPL field office reorganization which increased the expense ratio by 1.2 percentage points in the prior year period.

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Segment Results - Workers' Compensation Insurance
Our Workers' Compensation Insurance segment includes workers' compensation products provided to employers generally with 1,000 or fewer employees, as discussed in Note 1314 of the Notes to Condensed Consolidated Financial Statements. Workers' compensation products offered include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market programs. Alternative market programs include program design, fronting, claims administration, risk management, SPC rental, asset management and SPC management services. Alternative market program premiums are 100% ceded to either the SPCs within our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer for one program. Our Workers' Compensation Insurance segment results reflected pre-tax underwriting profit or loss from these workers' compensation products, exclusive of investment results, which are included in our Corporate segment. Segment results included the following:
Three Months Ended March 31
($ in thousands)20212020Change
Net premiums written$46,884 $50,312 $(3,428)(6.8 %)
Net premiums earned$40,011 $44,515 $(4,504)(10.1 %)
Other income392 757 (365)(48.2 %)
Net losses and loss adjustment expenses(26,207)(29,769)3,562 (12.0 %)
Underwriting, policy acquisition and operating expenses(12,286)(14,164)1,878 (13.3 %)
Segment results$1,910 $1,339 $571 42.6 %
Net loss ratio65.5%66.9%(1.4 pts)
Underwriting expense ratio30.7%31.8%(1.1 pts)
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)20202019Change 20202019Change
Net premiums written$44,758
$49,663
$(4,905)(9.9%) $135,370
$146,101
$(10,731)(7.3%)
          
Net premiums earned$42,516
$49,477
$(6,961)(14.1%) $129,437
$141,990
$(12,553)(8.8%)
Other income441
494
(53)(10.7%) 1,717
1,948
(231)(11.9%)
Net losses and loss adjustment expenses(26,455)(32,356)5,901
(18.2%) (84,648)(93,424)8,776
(9.4%)
Underwriting, policy acquisition and operating expenses(14,983)(14,895)(88)0.6% (42,604)(43,456)852
(2.0%)
Segment results$1,519
$2,720
$(1,201)(44.2%) $3,902
$7,058
$(3,156)(44.7%)
          
Net loss ratio62.2%65.4%(3.2 pts)  65.4%65.8%(0.4 pts) 
Underwriting expense ratio35.2%30.1%5.1 pts  32.9%30.6%2.3 pts 

Premiums Written
Our workers’ compensation premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of our existing book of business, (3) premium rates charged on our renewal book of business, (4) changes in payroll exposure and (5) audit premium.
Gross, ceded and net premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums written$72,328 $79,243 $(6,915)(8.7 %)
Less: Ceded premiums written25,444 28,931 (3,487)(12.1 %)
Net premiums written$46,884 $50,312 $(3,428)(6.8 %)
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 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)20202019Change 20202019Change
Gross premiums written$62,996
$70,066
$(7,070)(10.1%) $199,447
$223,638
$(24,191)(10.8%)
Less: Ceded premiums written18,238
20,403
(2,165)(10.6%) 64,077
77,537
(13,460)(17.4%)
Net premiums written$44,758
$49,663
$(4,905)(9.9%) $135,370
$146,101
$(10,731)(7.3%)
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Gross Premiums Written
Gross premiums written by product were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Traditional business:
Guaranteed cost$38,196 $42,062 $(3,866)(9.2 %)
Policyholder dividend7,520 8,031 (511)(6.4 %)
Deductible2,052 1,926 126 6.5 %
Retrospective(1)
455 344 111 32.3 %
Other1,600 1,781 (181)(10.2 %)
Alternative market business(2)
23,715 25,959 (2,244)(8.6 %)
Change in EBUB estimate(1,210)(860)(350)40.7 %
Total$72,328 $79,243 $(6,915)(8.7 %)
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)2020 2019 Change 2020 2019 Change
Traditional business:               
Guaranteed cost$40,540
 $44,164
 $(3,624) (8.2%) $117,651
 $124,460
 $(6,809) (5.5%)
Policyholder dividend4,057
 4,718
 (661) (14.0%) 17,233
 16,972
 261
 1.5%
Deductible1,642
 2,199
 (557) (25.3%) 4,120
 5,276
 (1,156) (21.9%)
Retrospective*308
 36
 272
 755.6% 1,646
 3,073
 (1,427) (46.4%)
Other1,741
 2,220
 (479) (21.6%) 5,208
 6,822
 (1,614) (23.7%)
Alternative market business15,138
 16,729
 (1,591) (9.5%) 54,879
 67,035
 (12,156) (18.1%)
Change in EBUB estimate(430) —
 (430) nm
 (1,290) —
 (1,290) nm
Total$62,996
 $70,066
 $(7,070) (10.1%) $199,447
 $223,638
 $(24,191) (10.8%)
*(1) The change in retrospectively-related policies included adjustments that increaseddecreased premium by $0.1 million and decreased premium by $1.6$0.2 million for the three and nine months ended September 30,March 31, 2021 and 2020, respectively, as comparedrespectively.
(2) A majority of alternative market premiums are ceded to a decreaseSPCs in premium of $0.4 million and $1.8 million for the same respective periods of 2019.
Grossour Segregated Portfolio Cell Reinsurance segment. See further discussion on alternative market gross premiums written in our traditional business decreased during the three and nine months ended September 30, 2020 as compared to the same periods of 2019, which primarily reflected renewal rate decreases, retention losses and a reduction in audit premium and new business. Additionally, the 2020 three- and nine-month periods reflect a decrease in our EBUB estimate of $0.4 million and $1.3 million, respectively. Renewal rate decreases were 3% and 4% during the three and nine months ended September 30, 2020, respectively, as compared to decreases of 4% and 3% for the same respective periods in 2019. Renewal retention was 84% and 85% for the 2020 three- and nine-month periods, respectively, as compared to 81% for each of the 2019 three- and nine-month periods.
Gross premiums written in our alternative market business decreased during the three and nine months ended September 30, 2020 as compared to the same periods of 2019, which primarily reflected renewal rate decreases, retention losses and a decrease in audit premium. The 2020 nine-month period reflected the reduction in premium funding for one of our large alternative market programs (see further discussion in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows). Renewalfollows.
Gross premiums written decreased during the three months ended March 31, 2021 as compared to the same period of 2020, which primarily reflected a decrease in audit premium, a reduction of our EBUB estimate and the continuation of competitive market conditions. Policy audits processed during the first quarter of 2021 resulted in audit premium returned to policyholders totaling $0.8 million as compared to audit premium billed to policyholders of $0.9 million for the same period of 2020. In addition, we reduced our EBUB estimate by $1.2 million and $0.9 million during the three months ended March 31, 2021 and 2020, respectively. The decrease in audit premium processed as well as the reduction of our EBUB estimate primarily reflected the impact of COVID-19 on both actual and expected final payroll audits for policies written prior to the onset of the pandemic in 2020. The competitive market conditions resulted in renewal rate decreases were 1% and 4%of 3% for the three and nine months ended September 30, 2020, respectively,March 31, 2021 as compared to 5% and 4% forduring the same periods in 2019. Retention in our alternative marketperiod of 2020. Additionally, new business was 90% and 83%written decreased $2.4 million for the three and nine months ended September 30, 2020, respectively,March 31, 2021 as compared to 96% and 93% for the same respective periodsperiod of 2019. Renewal2020. The renewal rate decreases and retention lossesreduction in new business were partially offset by new business of $1.2 million and $3.0 millionan improvement in renewal retention, which was 90% for the three and nine months ended September 30,March 31, 2021 as compared to 83% for the same period in 2020. The 2020 respectively.renewal retention was impacted by the reduction in premium funding for a large alternative market program. We retained 100% of the 17 workers'nine workers’ compensation alternative market programs that were up for renewal during the nine months ended September 30, 2020. During the secondfirst quarter of 2020, we added one new workers' compensation alternative market program at Inova Re with $0.3 million and $0.9 million in premiums written during the three and nine months ended September 30, 2020, respectively.
Our traditional and alternative market premiums written were impacted by reductions in payroll exposure and policy cancellations related to the economic impact of COVID-19. Reductions in payroll exposure and policy cancellations related to the economic impact of COVID-19 reduced premiums written by approximately $2.3 million and $1.1 million, respectively, for the nine months ended September 30, 2020. We expect continued downward pressure in future quarters on our workers' compensation premium resulting from further reductions in insured payroll exposure; however, the length and magnitude of such changes depends on future developments, which are highly uncertain and cannot be predicted.




2021.
New business, audit premium, retention and renewal price changes for both the traditional business and the alternative market business are shown in the tablestable below:
Three Months Ended March 31
20212020
($ in millions)Traditional BusinessAlternative Market BusinessSegment
Results		Traditional BusinessAlternative Market BusinessSegment
Results
New business$5.9 $0.8 $6.7 $8.0 $1.1 $9.1 
Audit premium (including EBUB)$(2.2)$0.2 $(2.0)$0.3 $(0.3)$— 
Retention rate (1)
89 %92 %90 %85 %78 %83 %
Change in renewal pricing (2)
(2 %)(5 %)(3 %)(4 %)(6 %)(4 %)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
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 Three Months Ended September 30
 2020 2019
($ in millions)Traditional BusinessAlternative Market BusinessSegment
Results		 Traditional BusinessAlternative Market BusinessSegment
Results
New business$6.2
$1.2
$7.4
 $10.5
$0.8
$11.3
Audit premium (including EBUB)$(1.3)$(0.3)$(1.6) $1.4
$0.4
$1.8
Retention rate (1)
84%90%86% 81%96%84%
Change in renewal pricing (2)
(3%)(1%)(3%) (4%)(5%)(4%)
        
 Nine Months Ended September 30
 2020 2019
($ in millions)Traditional BusinessAlternative Market BusinessSegment
Results		 Traditional BusinessAlternative Market BusinessSegment
Results
New business$20.0
$3.0
$23.0
 $22.3
$3.0
$25.3
Audit premium (including EBUB)$(0.8)$(0.5)$(1.3) $2.3
$1.3
$3.6
Retention rate (1)
85%83%85% 81%93%84%
Change in renewal pricing (2)
(4%)(4%)(4%) (3%)(4%)(3%)
        
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
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Ceded Premiums Written
Ceded premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Premiums ceded to SPCs$20,682 $23,356 $(2,674)(11.4 %)
Premiums ceded to external reinsurers2,974 3,245 (271)(8.4 %)
Premiums ceded to unaffiliated captive insurer3,033 2,603 430 16.5 %
Change in return premium estimate under external reinsurance(474)31 (505)(1,629.0 %)
Estimated revenue share(771)(304)(467)153.6 %
Total ceded premiums written$25,444 $28,931 $(3,487)(12.1 %)
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)2020 2019 Change 2020 2019 Change
Premiums ceded to SPCs$15,057
 $16,706
 $(1,649) (9.9%) $52,110
 $64,610
 $(12,500) (19.3%)
Premiums ceded to external reinsurers2,900
 3,471
 (571) (16.5%) 8,951
 10,287
 (1,336) (13.0%)
Premiums ceded to unaffiliated captive insurers81
 23
 58
 252.2% 2,769
 2,425
 344

14.2%
Change in return premium estimate under external reinsurance200
 203
 (3) (1.5%) 247
 215
 32
 14.9%
Total ceded premiums written$18,238
 $20,403
 $(2,165) (10.6%) $64,077
 $77,537
 $(13,460) (17.4%)
Our Workers' Compensation Insurance segment cedesPremiums ceded to SPCs represents alternative market business that is ceded under 100% quota share reinsurance agreements to the SPCs in our Segregated Portfolio Cell Reinsurance segment. Premiums ceded to the unaffiliated captive insurer reflect the alternative market business that is ceded under a 100% quota share reinsurance agreement net of a ceding commission, to SPCs in our Segregated Portfolio Cell Reinsurance segment and, to a limited extent, to an unaffiliated captive insurer.for one program. The decrease in premiums ceded to SPCs duringfor the three and nine months ended September 30, 2020March 31, 2021 primarily reflects the reduction in alternativecompetitive workers' compensation market gross premiums written as discussed above under the heading "Gross Premiums Written".conditions.
Under our external reinsurance agreement for traditional business, we retain the first $0.5 million in risk insured by us and cede losses in excess of this amount on each loss occurrence under our primary external reinsurance treaty, subject to an AAD. The AAD, for the contract year effective May, 1 2019 was $3.9 million, or approximately 2.1% of subject earned premium. Effective May 1, 2020, our primary reinsurance layer was renewed at a slightly higher rate than the expiring year, with an increase in the AADequal to 3.16% of subjectceded earned premium, in excess of the $0.5 million retention per loss occurrence.premium. Per our reinsurance agreements, we cede premiums related to our traditional business on an earned premium basis. The decrease in premiums ceded to external reinsurers during the 2020 three- and nine-month periods2021 three-month period primarily reflected the decrease in traditional earned premium.

premium, partially offset by an increase in reinsurance rates.
Changes in the return premium estimate reflected adjustments to our estimate of expected future recovery of ceded premium based on the underlying loss experience underof our reinsurance contracts that include a provision for return premium. We increased our estimate of return premium by $0.5 million during the reinsurance contractthree months ended March 31, 2021, as compared to a nominal decrease in our estimate for the three and nine months ended September 30, 2020 and 2019.same period in 2020. The change in estimated return premium for the three and nine months ended September 30, 2020March 31, 2021 primarily reflected favorable prior year loss development on previously reported reinsured claims.
Our reinsurance program includes a revenue share agreement with our reinsurance broker under which we share in the broker's revenue above an agreed upon minimum retention. We increased our estimate of the revenue share with our reinsurance broker related to the current contract year during the three months ended March 31, 2021, reflecting an increase in the ceded premium under the reinsurance treaties.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2020 2019 Change 2020 2019 Change20212020Change
Ceded premiums ratio, as reported32.3% 33.5% (1.2 pts) 32.5% 34.1% (1.6 pts)Ceded premiums ratio, as reported31.8 %32.2 %(0.4  pts)
Less the effect of:    

     

Less the effect of:
Premiums ceded to SPCs (100%)24.1% 25.4% (1.3 pts) 24.5% 26.2% (1.7 pts)Premiums ceded to SPCs (100%)25.9 %24.7 %1.2  pts
Retrospective premium adjustments—% —% —
 0.1% 0.1% —
Premiums ceded to unaffiliated captive insurers (100%)1.4% 1.2% 0.2 pts 1.4% 1.1% 0.3 ptsPremiums ceded to unaffiliated captive insurers (100%)1.7 %1.2 %0.5  pts
Change in EBUB0.1% —% 0.1 pts 0.1% —% 0.1 ptsChange in EBUB0.1 %0.1 %—  pts
Return premium estimated under external reinsurance0.4% 0.4% —
 0.1% 0.1% —
Change in return premium estimate under external reinsuranceChange in return premium estimate under external reinsurance(1.1 %)0.1 %(1.2  pts)
Estimated revenue shareEstimated revenue share(1.8 %)(0.6 %)(1.2  pts)
Assumed premiums earned (not ceded to external reinsurers)(0.2%) (0.3%) 0.1 pts (0.2%) (0.3%) 0.1 ptsAssumed premiums earned (not ceded to external reinsurers)(0.3 %)(0.2 %)(0.1  pts)
Ceded premiums ratio (related to external reinsurance), less the effects of above6.5%
6.8%
(0.3 pts) 6.5%
6.9% (0.4 pts)Ceded premiums ratio (related to external reinsurance), less the effects of above7.3 %6.9 %0.4  pts
The above table reflects ceded premiums earned as a percent of gross premiums earned. As discussed above, we cede premiums related to our traditional business to external reinsurers on an earned premium basis. The increase in the ceded premiums ratio for the three and nine months ended September 30,March 31, 2021 as compared to the same period in 2020 primarily reflects the increase in reinsurance rates in effect for the contract period beginning May 1, 2020.
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Table of Contents
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to SPCs in our Segregated Portfolio Cell Reinsurance segment, external reinsurers and the unaffiliated captive insurer. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Our workers’ compensation policies are twelve month term policies, and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of our insureds' payrolls, changes in our EBUB premium estimate and premium adjustments related to retrospectively-rated policies. Payroll audits are conducted subsequent to the end of the policy period and any related adjustments are recorded as fully earned in the current period. In addition, we record an estimate for EBUB premium and evaluate the estimate on a quarterly basis.
Net premiums earned were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums earned$58,632 $65,613 $(6,981)(10.6 %)
Less: Ceded premiums earned18,621 21,098 (2,477)(11.7 %)
Net premiums earned$40,011 $44,515 $(4,504)(10.1 %)
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)20202019Change 20202019Change
Gross premiums earned$62,807
$74,403
$(11,596)(15.6%) $191,849
$215,561
$(23,712)(11.0%)
Less: Ceded premiums earned20,291
24,926
(4,635)(18.6%) 62,412
73,571
(11,159)(15.2%)
Net premiums earned$42,516
$49,477
$(6,961)(14.1%) $129,437
$141,990
$(12,553)(8.8%)
The decrease in net premiums earned during the three and nine months ended September 30,March 31, 2021 as compared to the same period of 2020 primarily reflected the pro rata effect of a reduction in net premiums written during the preceding twelve months, the impact of retrospectively-rated policy adjustmentsa decrease in audit premium and, to a lesser extent, the reduction in our EBUB estimate, partially offset by an increase in broker revenue sharing and, to a lesser extent, return premium estimate.estimates under our reinsurance contracts. We reduced our EBUB premium estimate by $0.4$1.2 million and $1.3$0.9 million during the three and nine months ended September 30,March 31, 2021 and 2020, respectively, whichrespectively. The reduction in our EBUB estimate during the current period primarily reflected a reductionthe impact of COVID-19 on both actual and expected final payroll audits for policies written prior to the onset of the pandemic in earned payroll exposure. As a result of2020. Please see "Item 1A, Risk Factors" in our December 31, 2020 report on Form 10-K for additional information on the economic impact of COVID-19, we expect future reductions in payroll exposure related to in-force policies that could result in a significant decrease in audit premium and our EBUB estimate. We will continue to monitor and adjust the estimate, if necessary, based on changes in insured payrolls and economic conditions, as experience develops or new information becomes known; however, the length and magnitudeCOVID-19.

78
Table of such changes depends on future developments, which are highly uncertain and cannot be predicted. There was no adjustment to our EBUB premium estimate during the three and nine months ended September 30, 2019. Premium adjustments related to retrospectively-rated policies increased premiums by $0.1 million and decreased premiums by $1.6 million for the three and nine months endedContents

September 30, 2020, respectively, as compared to a decrease in premiums of $0.4 million and $1.8 million for the same respective periods of 2019.
Losses and Loss Adjustment Expenses
We estimate our current accident year loss and loss adjustment expenses based on an expected loss ratio. Incurred losses and loss adjustment expenses for the current accident year are determined by applying the expected loss ratio to net premiums earned for the respective period. The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Calendar year and current accident year net loss ratios by component were as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2020 2019 Change 2020 2019 Change20212020Change
Calendar year net loss ratio62.2% 65.4% (3.2 pts) 65.4% 65.8% (0.4 pts)Calendar year net loss ratio65.5 %66.9 %(1.4  pts)
Less impact of prior accident years on the net loss ratio(4.7%) (2.8%) (1.9 pts) (3.8%) (2.4%) (1.4 pts)Less impact of prior accident years on the net loss ratio(5.5 %)(3.3 %)(2.2  pts)
Current accident year net loss ratio66.9% 68.2% (1.3 pts) 69.2% 68.2% 1.0 ptsCurrent accident year net loss ratio71.0 %70.2 %0.8  pts
The increase in the current accident year net loss ratio for the ninethree months ended September 30, 2020March 31, 2021 primarily reflected the continuation of intense price competition and the resulting renewal rate decreases as well as the effect of lower net premiums earned driven by a reduction in audit premium and our EBUB estimate, as previously discussed. The increase in the current accident year loss ratio was partially offset by favorable claim trends in prior accident year claim closing patterns that reduced loss development factors. Duringresults and their impact on our analysis of the third quarter of 2020, we reduced ourcurrent accident year loss ratio for the nine months ended September 30, 2020 to 69.2%, from 70.4% as of June 30, 2020, resulting in a current quarter accident year loss ratio of 66.9% for the three months ended September 30, 2020, which primarily reflected the continuation of favorable trends in 2020, including lower claims frequency and severity.estimate. As a result of the COVID-19 pandemic, we have observed a reduction in claims frequency and, while we did reduce our current accident year loss ratio in the third quarter of 2020, we continue to remain cautious in our evaluation of the current accident year reserve due to uncertainty surrounding the length and severity of the pandemic, as well as legislative and regulatory bodies in certain states changinghave changed or attemptingare considering changes to change compensability requirements and presumptions for certain types of workers related to COVID-19 claims. If successful, these endeavors could result in an increase in claims frequency and severity which may result in a higher current accident year net loss ratio in future quarters. Furthermore, the current economic conditions resulting from the COVID-19 pandemic have introduced significant risk of a prolonged recession, whichSuch changes could have an adverse impact on our returnthe frequency and severity related to wellness efforts and the ability of injured workers to return to work, resulting in a potential reduction in favorable claim trends in future periods.COVID-19 claims.
Calendar year incurred losses (excluding IBNR) ceded to our external reinsurers decreased $3.5 million and $2.8$0.5 million for the three and nine months ended September 30, 2020, respectively,March 31, 2021 as compared to the same periodsperiod of 2019. Current2020. There were no current accident year ceded incurred losses decreased $2.1 million(excluding IBNR) during both the three and nine months ended September 30,March 31, 2021 or 2020, respectively, as compared toreflecting lower claim severity and the same periodsimpact of 2019.the AAD (see previous discussion under the heading "Ceded Premiums Written"). The decrease in ceded incurred losses for both
the three and nine months ended September 30, 2020March 31, 2021 reflects lower severity-related claim activity in 2020.favorable development on prior accident year reinsured claims.
We recognized net favorable prior year development related to our previously established reserve of $2.0$2.2 million and $5.0$1.5 million for the three and nine months ended September 30,March 31, 2021 and 2020, respectively, as compared to $1.4 million and $3.4 million for the same respective periods of 2019.respectively. The net favorable prior year reserve development for the three and nine months ended September 30,March 31, 2021 and 2020 reflected overall favorable trends in claim closing patterns. Net favorable development for the 20202021 three-month period was primarily related to the 20132017 accident year and 2015 accident years and accident years prior to 2010.prior. Net favorable development for the 2020 nine-monththree-month period was primarily related to the 2013 through2015 and 2016 accident years and accident years prior to 2010. Net favorable development for the three and nine months ended September 30, 2019 included $0.4 million and $1.2 million, respectively, related to the amortization of purchase accounting adjustments, which were fully amortized at December 31, 2019.years.

Underwriting, Policy Acquisition and Operating Expenses
Underwriting, policy acquisition and operating expenses includes the amortization of commissions, premium taxes and underwriting salaries, which are capitalized and deferred over the related workers’ compensation policy period, net of ceding commissions earned. The capitalization of underwriting salaries can vary as they are subject to the success rate of our contract acquisition efforts. These expenses also include a management fee charged by our Corporate segment, which represents intercompany charges pursuant to a management agreement, and the amortization of intangible assets, primarily related to the acquisition of Eastern by ProAssurance. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary.
Our Workers' Compensation Insurance segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended March 31
($ in thousands)20212020Change
DPAC amortization$6,741 $7,850 $(1,109)(14.1 %)
Management fees542 601 (59)(9.8 %)
Other underwriting and operating expenses8,521 10,032 (1,511)(15.1 %)
SPC ceding commission offset(3,518)(4,319)801 (18.5 %)
Total$12,286 $14,164 $(1,878)(13.3 %)
79
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)2020 2019 Change 2020 2019 Change
DPAC amortization$8,410
 $9,021
 $(611) (6.8%) $23,547
 $26,072
 $(2,525) (9.7%)
Management fees476
 525
 (49) (9.3%) 1,505
 1,677
 (172) (10.3%)
Other underwriting and operating expenses10,131
 9,939
 192
 1.9% 29,468
 29,122
 346
 1.2%
SPC ceding commission offset(4,034) (4,590) 556
 (12.1%) (11,916) (13,415) 1,499
 (11.2%)
Total$14,983
 $14,895
 $88
 0.6% $42,604
 $43,456
 $(852) (2.0%)
Table of Contents
The decrease in DPAC amortization for the three and nine months ended September 30, 2020March 31, 2021 as compared to the same periodsperiod in 20192020 primarily reflects the decrease in net premiums earned. The increasedecrease in other underwriting and operating expenses for the three and nine months ended September 30,March 31, 2021 as compared to the same period of 2020 primarily reflected one-time costs of $0.9 million primarily comprised of employee severance costs associated with the restructuring of our workers' compensation business during the current period, partially offset by a decrease in employee benefitcompensation-related costs and, travel-related costs. Theto a lesser extent, a decrease in travel-related costs forrelated to the threeCOVID-19 pandemic. The decrease in compensation-related costs during the 2021 three-month period was driven by a reduction in headcount as a result of the 2020 organizational restructuring and, nine months ended September 30,to a lesser extent, a decrease in employer contributions to the ProAssurance Savings Plan (see Note 17 of the Notes to Consolidated Financial Statements in our December 31, 2020 are directly attributable to COVID-19, as company business travel has been substantially reduced.report on Form 10-K).
As previously discussed, alternative market premiums written through our Workers' Compensation Insurance segment's alternative market business unit are 100% ceded, less a ceding commission, to either the SPCs in our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer. The ceding commission consists of an amount for fronting fees, cell rental fees, commissions, premium taxes and risk management fees. The fronting fees, commissions, premium taxes and risk management fees are recorded as an offset to underwriting, policy acquisition and operating expenses. Cell rental fees are recorded as a component of other income and claims administration fees are recorded as ceded ULAE. The decrease in SPC ceding commissions earned decreased for the three and nine months ended September 30, 2020March 31, 2021 as compared to the same respective periodsperiod of 2019,2020, primarily reflectingreflects the decrease in alternative market ceded earned premium.
Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2020 2019 Change 2020 2019 Change20212020Change
Underwriting expense ratio, as reported35.2% 30.1% 5.1 pts 32.9% 30.6% 2.3Underwriting expense ratio, as reported30.7 %31.8 %(1.1  pts)
Less estimated ratio increase (decrease) attributable to:          Less estimated ratio increase (decrease) attributable to:
Impact of ceding commissions received from SPCs2.6% 2.6% —
 3.1% 2.9% 0.2Impact of ceding commissions received from SPCs2.9 %2.3 %0.6  pts
Retrospective premium adjustment—% 0.1% (0.1 pts) 0.3% 0.2% 0.1Retrospective premium adjustment— %0.1 %(0.1  pts)
Impact of audit premium0.7% (0.6%) 1.3 pts 0.3% (0.3%) 0.6Impact of audit premium1.0 %(0.2 %)1.2  pts
Impact of return premium estimate0.1% 0.1% —
 —% —% —
Change in return premium estimate under external reinsuranceChange in return premium estimate under external reinsurance(0.2 %)— %(0.2  pts)
Estimated revenue shareEstimated revenue share(0.4 %)(0.1 %)(0.3  pts)
Underwriting expense ratio, less listed effects31.8% 27.9% 3.9 pts 29.2% 27.8% 1.4Underwriting expense ratio, less listed effects27.4 %29.7 %(2.3  pts)
Excluding the items noted in the table above, the increase in the expense ratio decreased for the three and nine months ended September 30, 2020March 31, 2021, primarily reflectsreflecting the aforementioned one-time charges,decrease in compensation-related costs related to the implementation of a new policy administration and claims system and, to a lesser extent, the effect oftravel-related costs, partially offset by the decrease in net premiums earned.

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Segment Results - Segregated Portfolio Cell Reinsurance
The Segregated Portfolio Cell Reinsurance segment reflectsincludes the results (underwriting profit or loss, plus investment results, net of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, our Cayman Islands SPC operations, as discussed in Note 1314 of the Notes to Condensed Consolidated Financial Statements. SPCs are segregated pools of assets and liabilities that provide an insurance facility for a defined set of risks. Assets of each SPC are solely for the benefit of that individual cell and each SPC is solely responsible for the liabilities of that individual cell. Assets of one SPC are statutorily protected from the creditors of the others. Each SPC is owned, fully or in part, by an agency, group or association and the results of the SPCs are attributable to the participants of that cell. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC results attributable to external cell participants are reflectedreported as an SPC dividend (expense) income in our Segregated Portfolio Cell Reinsurance segment. In addition, our Segregated Portfolio Cell Reinsurance segment includes the investment results of the SPCs as the investments are solely for the benefit of the cell participants and investment results attributable to external cell participants are reflected in the SPC dividend (expense) income. As of September 30, 2020,March 31, 2021, there were 27 (24 active)(3 inactive) SPCs. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from our Workers' Compensation Insurance and Specialty P&C segments. As of September 30, 2020,March 31, 2021, there were two SPCs that assumed both workers' compensation insurance and healthcare professional liability insurance and one SPC that assumed only healthcare professional liability insurance.
Segment results reflects our share of the underwriting and investment results of the SPCs in which we participate, and included the following:
Three Months Ended March 31
($ in thousands)20212020Change
Net premiums written$22,188 $23,990 $(1,802)(7.5 %)
Net premiums earned$15,884 $16,980 $(1,096)(6.5 %)
Net investment income221 254 (33)(13.0 %)
Net realized gains (losses)987 (3,207)4,194 130.8 %
Other income1 136 (135)(99.3 %)
Net losses and loss adjustment expenses(9,425)(9,352)(73)0.8 %
Underwriting, policy acquisition and operating expenses(5,025)(5,079)54 (1.1 %)
SPC U.S. federal income tax expense (1)
(356)(222)(134)60.4 %
SPC net results2,287 (490)2,777 566.7 %
SPC dividend (expense) income (2)
(1,742)508 (2,250)442.9 %
Segment results (3)
$545 $18 $527 2,927.8 %
Net loss ratio59.3 %55.1 %4.2 pts
Underwriting expense ratio31.6 %29.9 %1.7 pts
(1) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
(2) Represents the net (profit) loss attributable to external cell participants.
(3) Represents our share of the net profit (loss) of the SPCs in which we participate.


 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)20202019Change 20202019Change
Net premiums written$14,011
$15,268
$(1,257)(8.2%) $51,246
$62,886
$(11,640)(18.5%)
          
Net premiums earned$16,052
$19,779
$(3,727)(18.8%) $49,780
$58,566
$(8,786)(15.0%)
Net investment income273
445
(172)(38.7%) 832
1,261
(429)(34.0%)
Net realized gains (losses)1,495
(98)1,593
(1,625.5%) 894
1,949
(1,055)(54.1%)
Other income12
176
(164)(93.2%) 203
397
(194)(48.9%)
Net losses and loss adjustment expenses(6,858)(9,778)2,920
(29.9%) (23,890)(40,496)16,606
(41.0%)
Underwriting, policy acquisition and operating expenses(5,036)(5,951)915
(15.4%) (15,474)(17,091)1,617
(9.5%)
SPC U.S. federal income tax expense(1)
(871)—
(871)nm
 (1,573)—
(1,573)nm
SPC net results5,067
4,573
494
10.8% 10,772
4,586
6,186
134.9%
SPC dividend (expense) income (2)
(3,854)(3,621)(233)6.4% (7,988)(1,375)(6,613)480.9%
Segment results (3)
$1,213
$952
$261
27.4%
$2,784
$3,211
$(427)(13.3%)
          
Net loss ratio42.7%49.4%(6.7 pts)  48.0%69.1%(21.1 pts) 
Underwriting expense ratio31.4%30.1%1.3 pts  31.1%29.2%1.9 pts 
(1) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
(2) Represents the net (profit) loss due to external cell participants.
(3) Represents our share of the net profit (loss) of the SPCs in which we participate.
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Premiums Written
Premiums in our Segregated Portfolio Cell Reinsurance segment are assumed from either our Workers' Compensation Insurance or Specialty P&C segments. Premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of the existing book of business, (3) premium rates charged on the renewal book of business and, for workers' compensation business, (4) changes in payroll exposure and (5) audit premium.
Gross, ceded and net premiums written were as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
($ in thousands)2020 2019 Change 2020 2019 Change($ in thousands)20212020Change
Gross premiums written$15,933
 $17,281
 $(1,348) (7.8%) $58,068
 $70,556
 $(12,488) (17.7%)Gross premiums written$25,151 $27,140 $(1,989)(7.3 %)
Less: Ceded premiums written1,922
 2,013
 (91) (4.5%) 6,822
 7,670
 (848) (11.1%)Less: Ceded premiums written2,963 3,150 (187)(5.9 %)
Net premiums written$14,011
 $15,268
 $(1,257) (8.2%) $51,246
 $62,886
 $(11,640) (18.5%)Net premiums written$22,188 $23,990 $(1,802)(7.5 %)
Gross Premiums Written
Gross premiums written reflected reinsurance premiums assumed by component as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
($ in thousands)2020 2019 Change 2020 2019 Change($ in thousands)20212020Change
Workers' compensation$15,057
 $16,706
 $(1,649) (9.9%) $52,110
 $64,610
 $(12,500) (19.3%)Workers' compensation$20,682 $23,356 $(2,674)(11.4 %)
Healthcare professional liability876
 575
 301
 52.3% 5,958
 5,465
 493
 9.0%Healthcare professional liability4,469 3,784 685 18.1 %
Other—
 —
 —
 nm
 —
 481
 (481) nm
Gross Premiums Written$15,933
 $17,281
 $(1,348) (7.8%) $58,068
 $70,556
 $(12,488) (17.7%)Gross Premiums Written$25,151 $27,140 $(1,989)(7.3 %)
Gross premiums written for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 were primarily comprised of workers' compensation coverages assumed from our Workers' Compensation Insurance segment. The decrease in workers' compensation gross premiums written during the three and nine months ended September 30, 2020March 31, 2021 as compared to the same periods of 2019period in 2020 primarily reflected the competitive workers’ compensation market conditions and the resulting renewal rate decreases of 1% and 4%5%, respectively,partially offset by an improvement in the renewal retention losses and a decrease in audit premium. Additionally,rate. The renewal retention rate for the decrease in gross premiums written duringthree months ended March 31, 2020 included the 2020 nine-month period reflectedimpact of a reduction in premium funding for a large workers' compensation alternative market program. We do not participate in this program; therefore, the reduction in premium funding had no effect on our share of the segment results for the ninethree months ended September 30,March 31, 2020. HealthcareThe increase in healthcare professional liability gross premiums written increased during the 2020 three- and nine-month periodsthree months ended March 31, 2021 as compared to the same periods of 2019,period in 2020 was driven by renewal pricing increases, primarily reflecting new business, partially offset by retention losses.due to increases in exposure for one program. We retained 100% of the 16eight workers' compensation programs and 2one healthcare professional liability programsprogram up for renewal during the ninethree months ended September 30, 2020. During the second quarter of 2020, we added one new alternative market program at Inova Re with $0.3 million and $0.9 million in premiums written during the three and nine months ended September 30, 2020, respectively.
Our workers’ compensation premiums written were impacted by reductions in payroll exposure and policy cancellations related to the economic impact of COVID-19, and we expect continued downward pressure in future quarters on our workers' compensation premium resulting from further reductions in insured payroll exposure; however, the length and magnitude of such changes depends on future developments, which are highly uncertain and cannot be predicted.

March 31, 2021.
New business, audit premium, retention and renewal price changes for the assumed workers' compensation premium is shown in the table below:
Three Months Ended March 31
($ in millions)20212020
New business$0.8 $1.1 
Audit premium (including EBUB)$0.2 $(0.3)
Retention rate (1)
92 %78 %
Change in renewal pricing (2)
(5 %)(6 %)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
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 Three Months Ended September 30 Nine Months Ended September 30
($ in millions)2020 2019 2020 2019
New business$1.2
 $0.8
 $3.0
 $3.0
Audit premium (including EBUB)$(0.3) $0.4
 $(0.5) $1.3
Retention rate (1)
90% 96% 83% 93%
Change in renewal pricing (2)
(1%) (5%) (4%) (4%)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
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Ceded Premiums Written
Ceded premiums written were as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
($ in thousands)20202019Change 20202019Change($ in thousands)20212020Change
Ceded premiums written$1,922
$2,013
$(91)(4.5%) $6,822
$7,670
$(848)(11.1%)Ceded premiums written$2,963 $3,150 $(187)(5.9 %)
For the workers' compensation business, each SPC has in place its own external reinsurance arrangements. The healthcare professional liability business is assumed net of reinsurance from our Specialty P&C segment; therefore, there are no ceded premiums related to the healthcare professional liability business reflected in the table above. The risk retention for each loss occurrence for the workers' compensation business ranges from $0.3 million to $0.4 million based on the program, with limits up to $119.7 million. In addition, each program has aggregate reinsurance coverage between $1.1 million and $2.1 million on a program year basis. Per the SPC external reinsurance agreements, premiums are ceded on a written premium basis and changesbasis. The decrease in ceded premiums written during the three months ended March 31, 2021 as compared to the same period of 2020, three- and nine-month periods primarily reflected changeswas driven by a decrease in workers' compensation gross premiums written, as compared to the same respective periodsand was partially offset by an increase in 2019.reinsurance rates for programs with renewal dates on or after May 1, 2020. External reinsurance rates vary based on the alternative market program.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
 Three Months Ended September 30 Nine Months Ended September 30
 2020 2019 Change 2020 2019 Change
Ceded premiums ratio12.8% 12.0% 0.8 pts 13.1% 11.9% 1.2 pts
Three Months Ended March 31
20212020Change
Ceded premiums ratio14.3%13.5%0.8 pts
The above table reflects ceded premiums as a percent of gross premiums written for the workers' compensation business only; healthcare professional liability business is assumed net of reinsurance, as discussed above. The ceded premiums ratio reflects the weighted average reinsurance rates of all SPC programs. The increase in the ceded premiums ratio for the three and nine months ended September 30, 2020March 31, 2021 primarily reflects an increase in reinsurance rates for programs renewing on or after May 1, 2020. For the 2020 nine-month period, the increase also reflected the reduction in premium funding for a large workers' compensation alternative market program (see previous discussion under the heading "Gross Premiums Written"). The reinsurance costs associated with this program are fixed, which resulted in an increase in the ceded ratio.

Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that the SPCs cede to external reinsurers. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Policies ceded to the SPCs are twelve month term policies and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of workers' compensation insureds' payrolls. Payroll audits are conducted subsequent to the end of the policy period and any related adjustments are recorded as fully earned in the current period.
Gross, ceded and net premiums earned were as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
($ in thousands)20202019Change 20202019Change($ in thousands)20212020Change
Gross premiums earned$18,175
$22,218
$(4,043)(18.2%) $56,277
$65,856
$(9,579)(14.5%)Gross premiums earned$17,967 $19,190 $(1,223)(6.4 %)
Less: Ceded premiums earned2,123
2,439
(316)(13.0%) 6,497
7,290
(793)(10.9%)Less: Ceded premiums earned2,083 2,210 (127)(5.7 %)
Net premiums earned$16,052
$19,779
$(3,727)(18.8%) $49,780
$58,566
$(8,786)(15.0%)Net premiums earned$15,884 $16,980 $(1,096)(6.5 %)
The decrease in net premiums earned during the three and nine months ended September 30, 2020March 31, 2021 primarily reflected the pro rata effect of a reduction in net premiums written during the preceding twelve months and, for the 2020 nine-month period, the reduction in premium funding for a large workers' compensation alternative market program compensation alternative market program (see previous discussion under the heading "Gross Premiums Written").months.
Net Investment Income and Net Realized Investment Gains (Losses)
Net investment income for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 was primarily attributable to interest earned on available-for-sale fixed maturity investments, which primarily includes investment-grade corporate debt securities. We recognized $1.5 million and $0.9$1.0 million of net realized investment gains during the three and nine months ended September 30, 2020, respectively, driven byMarch 31, 2021, which primarily reflected an increase in the fair value on our equity portfolio due to an improvement in the global financial markets since the first quarter of 2020, which was depressed due to the onset of COVID-19.portfolio. We recognized $0.1$3.2 million of net realized investment losses during the three months ended September 30, 2019 and $1.9 million of net realized investment gains during the nine months ended September 30, 2019March 31, 2020 driven by changes in the fair value of our equity securities portfolio.portfolio attributable to the disruptions in global financial markets related to COVID-19.
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Losses and Loss Adjustment Expenses
The following table summarizes the calendar year net loss ratios by separating losses between the current accident year and all prior accident years. The current accident year net loss ratio reflected the aggregate loss ratio for all programs. Loss reserves are estimated for each program on a quarterly basis. Due to the size of some of the programs, quarterly loss results can create volatility in the current accident year net loss ratio to fluctuate significantly from period to period.
Calendar year and current accident year net loss ratios for the three months ended September 30,March 31, 2021 and 2020 and 2019 was as follows:
Three Months Ended March 31
20212020Change
Calendar year net loss ratio59.3 %55.1 %4.2  pts
Less impact of prior accident years on the net loss ratio(9.6 %)(10.6 %)1.0  pts
Current accident year net loss ratio68.9 %65.7 %3.2  pts
 Three Months Ended September 30
 2020 2019 Change
Calendar year net loss ratio42.7% 49.4% (6.7 pts)
Less impact of prior accident years on the net loss ratio(24.6%) (16.7%) (7.9 pts)
Current accident year net loss ratio67.3% 66.1% 1.2 pts
The increase in the current accident year net loss ratio for the 20202021 three-month period primarily reflects the impact of the continuation of intense price competition and resulting renewal rate decreases, partially offset by favorable claim trends and lower severity-related claim activity.
For the nine months ended September 30, 2019, our Segregated Portfolio Cell Reinsurance segment net loss ratios were affected by a $10 million reserve that an SPC at Eastern Re established during the second quarter of 2019. This SPC had previously assumed an errors and omissions liability policy that provides coverage for losses up to a lifetime maximum of $10 million from a captive insurer unaffiliated with ProAssurance. During the second quarter of 2019, a claim was filed under this policy that met the lifetime maximum limit and, accordingly, a $10 million reserve was recorded. We do not participate in the SPC that assumed this policy; therefore, these losses were attributable to the external cell participants as reflected in the SPC dividend expense (income) and had no effect on our Segregated Portfolio Cell Reinsurance segment results for the nine months ended September 30, 2019. Given the significance of this event, we have removed the impact of the policy from each of the

ratios below (as shown in the columns labeled "Adjusted") in order to assist in the comparability between periods. Calendar year and current accident year net loss ratios for the nine months ended September 30, 2020 and 2019 was as follows:
 Nine Months Ended September 30
 2020 2019 Change
 As reported As reportedE&O Reserve ImpactAdjusted As reportedAdjusted
Calendar year net loss ratio48.0% 69.1%16.6 pts52.5% (21.1 pts)(4.5 pts)
Less impact of prior accident years on the net loss ratio(15.3%) (13.4%)0.1 pts(13.5%) (1.9 pts)(1.8 pts)
Current accident year net loss ratio63.3% 82.5%16.5 pts66.0% (19.2 pts)(2.7 pts)
Excluding the impact of the errors and omissions liability policy, as previously discussed and as shown in the table above, the current accident year net loss ratio for the 2020 nine-month period decreased 2.73.2 percentage points as compared to the same respective period of 2019. The decrease during the 2020 nine-month period primarily reflected overall favorable trends in workers' compensation claim closing patterns, including lower severity, partially offset by the effect of the continuation of intense price competition and the resulting renewal rate decreases.decreases in the workers' compensation business. As a result of the COVID-19 pandemic, legislative and regulatory bodies in certain states have changed or are attemptingconsidering changes to change compensability requirements and presumptions for certain types of workers related to COVID-19 claims. If successful, these endeavorsSuch changes could result inhave an increase in claimsadverse impact on the frequency and severity which may result in a higher current accident year net loss ratio in future quarters.related to COVID-19 claims.
Calendar year ceded incurred losses (excluding IBNR) ceded to our external reinsurers decreased $2.2 million and $3.9increased $3.1 million for the 2020 three- and nine-month periods, respectively,2021 three-month period as compared to the same periodsperiod of 2019.2020, primarily reflecting the impact of three large claims reported in the first quarter of 2021 that occurred in late 2020. Current accident year ceded incurred losses (excluding IBNR) decreased $1.8 million and $2.0$0.4 million for the 2020 three- and nine-month periods, respectively,2021 three-month period, as compared to the same respective periodsperiod of 2019.2020.
We recognized net favorable prior year reserve development of $4.0$1.4 million and $7.6$1.8 million for the three and nine months ended September 30,March 31, 2021 and 2020, respectively, and $3.3 million and $7.8 million for the same periods of 2019.respectively. The net favorable prior year reserve development for the three and nine months ended September 30, 2020 included $4.0 million and $6.6 millionMarch 31, 2021 related entirely to the workers’ compensation business, respectively. In addition, net favorable prior year reserve development for the nine months ended September 30, 2020 included $1.0 million related to the healthcare professional liability business. Development recognized for the three and nine months ended September 30, 2020which primarily reflected the overall favorable trends in claim closing patterns primarily in the 2018 and 2019 accident years. The net favorable prior year development for the three months ended March 31, 2020 included $0.8 million and $1.0 million related to the workers' compensation and healthcare professional liability business, respectively. The workers' compensation favorable development was primarily related to the 2018 accident year, while the healthcare professional liability favorable development was primarily related to the 2016 through 2018 accident years. The current economic conditions resulting from the COVID-19 pandemic have introduced significant risk of a prolonged recession, which could have an adverse impact on our return to wellness efforts and the ability of injured workers to return to work, resulting in a potential reduction in favorable claim trends in future periods.
Underwriting, Policy Acquisition and Operating Expenses
Our Segregated Portfolio Cell Reinsurance segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
($ in thousands)2020 2019 Change 2020 2019 Change($ in thousands)20212020Change
DPAC amortization$4,714
 $5,493
 $(779) (14.2%) $14,787
 $16,159
 $(1,372) (8.5%)DPAC amortization$4,636 $5,135 $(499)(9.7 %)
Other underwriting and operating expenses322
 458
 (136) (29.7%) 687
 932
 (245) (26.3%)Other underwriting and operating expenses389 (56)445 794.6 %
Total$5,036
 $5,951
 $(915) (15.4%) $15,474
 $17,091
 $(1,617) (9.5%)Total$5,025 $5,079 $(54)(1.1 %)
DPAC amortization primarily represents ceding commissions, which vary by program and are paid to our Workers' Compensation Insurance and Specialty P&C segments for premiums assumed. Ceding commissions include an amount for fronting fees, commissions, premium taxes and risk management fees, which are reported as an offset to underwriting, policy acquisition and operating expenses within our Workers' Compensation Insurance and Specialty P&C segments. In addition, ceding commissions paid to our Workers' Compensation Insurance segment include cell rental fees which are recorded as other income within our Workers' Compensation Insurance segment.
Other underwriting and operating expenses primarily include bank fees, professional fees and bad debt expense. The decreaseincrease in other underwriting and operating expenses for the three and nine months ended September 30, 2020March 31, 2021 as compared to the same periodsperiod in 20192020 primarily reflected the effect of recoveries of premiums receivables during the first quarter of 2020 that were previously written off, which resulted in an adjustmenta reduction to our allowance for expected credit losses.losses and, to a lesser extent, an increase in policyholder dividend expense related to one SPC program.

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Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2020 2019 Change 2020 2019 Change20212020Change
Underwriting expense ratio, as reported31.4% 30.1% 1.3 pts 31.1% 29.2% 1.9 ptsUnderwriting expense ratio, as reported31.6%29.9%1.7 pts
Less: impact of audit premium on expense ratio0.6% (0.5%) 1.1 pts 0.4% (0.5%) 0.9 ptsLess: impact of audit premium on expense ratio(0.3%)0.6%(0.9 pts)
Underwriting expense ratio, excluding the effect of audit premium30.8% 30.6% 0.2 pts 30.7% 29.7% 1.0 ptsUnderwriting expense ratio, excluding the effect of audit premium31.9%29.3%2.6 pts
Excluding the effect of audit premium, the increase in the underwriting expense ratio during the 2021 three-month period primarily reflected the effect of the aforementioned premiums receivable recoveries during the first quarter of 2020 and the increase in policyholder dividend expense, partially offset by a decrease in the weighted average ceding commission percentage of all SPC programs. The increase in the expense ratio during the 2020 three- and nine-month periods was driven by the effect of a reduction in net premiums earned, as previously discussed. Additionally, the increase in the expense ratio during the 2020 nine-month period reflected the impact of the reduction in premium funding for a large workers' compensation alternative market program as the ceding commissions associated with this program are fixed and do not vary directly with changes in premium (see previous discussion under the heading "Gross Premiums Written").
SPC U.S. Federal Income Tax Expense
The SPCs at Inova Re have made a 953(d) election under the U.S. Internal Revenue Code and are subject to U.S. federal income tax. U.S. federal income taxes incurred totaled $0.9$0.4 million and $1.6$0.2 million for the three and nine months ended September 30,March 31, 2021 and 2020, respectively. There was no provision for U.S. federal income taxes for the three and nine months ended September 30, 2019. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.

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Ceded Premiums Written
Ceded premiums represent the amounts owed to our reinsurers for their assumption of a portion of our losses. For our HCPL and Medical Technology Liability excess of loss reinsurance arrangements in effect prior to October 1, 2020, we generally retained the first $1 million in risk insured by us and ceded coverages in excess of this amount. Effective October 1, 2020, we generally retain the first $2 million in risk insured by us and cede coverages in excess of this amount. For our HCPL coverages, we also retain from 0% to 14.5% of the next $24 million of risk for coverages in excess of $2 million. For our Medical Technology Liability treaty which also renewed effective October 1, 2020, we also retain 2.5% of the next $8 million of risk for coverages in excess of $2 million. These changes in terms for both our HCPL and Medical Technology Liability treaties resulted in a reduction to the gross rate paid for the treaty year effective October 1, 2020. We pay our reinsurers a ceding premium in exchange for their accepting the risk, and in certain of our excess of loss arrangements, the ultimate amount of which is determined by the loss experience of the business ceded, subject to certain minimum and maximum amounts.
Given the length of time that it takes to resolve our claims, many years may elapse before all losses recoverable under a reinsurance arrangement are known. As a part of the process of estimating our loss reserve we also make estimates regarding the amounts recoverable under our reinsurance arrangements. As a result, we may have an adjustment to our estimate of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. Any changes to estimates of premiums ceded related to prior accident years are fully earned in the period the changes in estimates occur.
Ceded premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Excess of loss reinsurance arrangements (1)
$7,678 $8,617 $(939)(10.9 %)
Other shared risk arrangements (2)
3,963 10,864 (6,901)(63.5 %)
Premium ceded to SPCs (3)
4,469 3,784 685 18.1 %
Other ceded premiums written866 861 5 0.6 %
Total ceded premiums written$16,976 $24,126 $(7,150)(29.6 %)
(1) We generally reinsure risks under our excess of loss reinsurance arrangements pursuant to which the reinsurers agree to assume all or a portion of all risks that we insure above our individual risk retention levels, up to the maximum individual limits offered. Premium due to reinsurers also fluctuates with the volume of written premium subject to cession under the arrangement. In certain of our excess of loss reinsurance arrangements, the premium due to the reinsurer is determined by the loss experience of that business reinsured, subject to certain minimum and maximum amounts. The decrease in ceded premiums written under our excess of loss reinsurance arrangements during the 2021 three-month period as compared to
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the same period of 2020 primarily reflected a decrease in the overall volume of gross premiums written subject to cession and, to a lesser extent, the reduced rate on the treaty year effective October 1, 2020.
(2) We have entered into various shared risk arrangements, including quota share, fronting, and captive arrangements, with certain large healthcare systems and other insurance entities. While we cede a large portion of the premium written under these arrangements, they provide us an opportunity to grow net premium through strategic partnerships. These arrangements include our Ascension Health program and, prior to the fourth quarter of 2020, our CAPAssurance program. Our CAPAssurance program was mutually dissolved on October 1, 2020 as a result of our acquisition of NORCAL and their concentration in the state of California. In addition, we entered into a new shared risk arrangement with a regional hospital group during the current period. The decrease in ceded premiums written under our shared risk arrangements during the 2021 three-month period as compared to the same period of 2020 was primarily due to the aforementioned dissolution of our arrangement with CAPAssurance, our non-renewal of two large policies in certain of our other shared risk arrangements effective May 1, 2020 and, to a lesser extent, a decrease in premium ceded to our Ascension Health program, somewhat offset by the premium ceded under our new shared risk arrangement, as previously discussed.
(3) As previously discussed, as a part of our alternative market solutions, all or a portion of certain healthcare premium written is ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. See the Segment Results - Segregated Portfolio Cell Reinsurance section for further discussion on the cession to the SPCs from our Specialty P&C segment. The increase in premiums ceded to SPCs during the 2021 three-month period as compared to the same period of 2020 was driven by renewal pricing increases (see discussion in footnote 10 under the heading "Gross Premiums Written").
Ceded Premiums Ratio
The ceded premiums ratio was as follows:
Three Months Ended March 31
 20212020Change
Ceded premiums ratio12.3%15.5%(3.2 pts)
The decrease in the ceded premiums ratio during the 2021 three-month period was primarily due to a decrease in premiums ceded under our shared risk arrangements and, to a lesser extent, the effect of the aforementioned assumed reinsurance program entered into during the current period with a regional hospital group (increase in gross premiums written with no premium ceded). See further discussion on the assumed reinsurance program in footnote 5 under the heading "Gross Premiums Written" and additional discussion on our shared risk arrangements above under the heading "Ceded Premiums Written."
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to our reinsurers for their assumption of a portion of our losses. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Generally, our policies carry a term of one year; however, prior to the third quarter of 2020, we wrote certain Standard Physician policies with a twenty-four month term, and a few of our Medical Technology Liability policies have a multi-year term. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. Retroactive coverage premiums are 100% earned at the inception of the contract, as all of the associated underlying loss events occurred in the past. Additionally, any ceded premium changes due to changes to estimates of premiums owed under reinsurance agreements for prior accident years are fully earned in the period of change.
Net premiums earned were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums earned$132,060 $139,023 $(6,963)(5.0 %)
Less: Ceded premiums earned16,447 18,664 (2,217)(11.9 %)
Net premiums earned$115,613 $120,359 $(4,746)(3.9 %)
Gross premiums earned during the 2021 three-month period included $2.3 million of retroactive premium written and fully earned associated with an assumed reinsurance program (see previous discussion in footnote 5 under the heading "Gross Premiums Written"). After removing the impact of the retroactive premium, gross premiums earned decreased $9.3 million during the 2021 three-month period as compared to the same period of 2020 driven by the pro rata effect of a decrease in the volume of written premium during the preceding twelve months, predominantly in our Specialty line of business, due to our re-
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underwriting efforts and, to a lesser extent, the dissolution of our arrangement with CAPAssurance, partially offset by two large tail policies written and fully earned in the current period.
The decrease in ceded premiums earned during the 2021 three-month period as compared to the same period of 2020 was driven by the pro rata effect of a decrease in premium ceded under our shared risk and excess of loss arrangements during the preceding twelve months.
Losses and Loss Adjustment Expenses
The determination of calendar year losses involves the actuarial evaluation of incurred losses for the current accident year and the actuarial re-evaluation of incurred losses for prior accident years, including an evaluation of the reserve amounts required for ECO/XPL losses. As part of the review of our prior accident year reserves, we also make estimates of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. This analysis may result in reductions to estimates of premiums owed under reinsurance agreements for prior accident years which impacts net premiums earned (the denominator of the net loss ratio) in the period the adjustment is made; no such adjustments were made during the three months ended March 31, 2021 or 2020. See previous discussion under the heading "Ceded Premiums Written" for additional information.
Accident year refers to the accounting period in which the insured event becomes a liability of the insurer. For claims-made policies, which represent the majority of the premiums written in our Specialty P&C segment, the insured event generally becomes a liability when the event is first reported to us. For occurrence policies, the insured event becomes a liability when the event takes place. For retroactive coverages, the insured event becomes a liability at inception of the underlying contract. We believe that measuring losses on an accident year basis is the best measure of the underlying profitability of the premiums earned in that period, since it associates policy premiums earned with the estimate of the losses incurred related to those policy premiums.
The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years.
The net loss ratios for our Specialty P&C segment were as follows:
Net Loss Ratios (1)
Three Months Ended March 31
20212020Change
Calendar year net loss ratio87.5 %92.2 %(4.7  pts)
Less impact of prior accident years on the net loss ratio(2.3 %)(2.0 %)(0.3  pts)
Current accident year net loss ratio(2)
89.8 %94.2 %(4.4  pts)
(1)Net losses, as specified, divided by net premiums earned.
(2)For the three months ended March 31, 2021, our current accident year net loss ratio improved 4.4 percentage points as compared to the same period of 2020 driven by decreases to certain loss ratios during the current period in our Standard Physician and Specialty lines of business as we continue to recognize the beneficial impacts of our re-underwriting efforts and focus on rate adequacy.
We re-evaluate our previously established reserve each quarter based upon the most recently completed actuarial analysis supplemented by any new analysis, information or trends that have emerged since the date of that study. We also take into account currently available industry trend information. We observed a reduction in claims frequency in 2020 that has continued into 2021, some of which is likely associated with the COVID-19 pandemic including the disruption of the court systems; however, we continue to remain cautious in recognizing these favorable frequency trends in our current accident year reserve due to the possibility of delays in reporting and uncertainty surrounding the length and severity of the pandemic.
We recognized net favorable prior year reserve development of $2.7 million and $2.4 million for the three months ended March 31, 2021 and 2020, respectively. Development recognized during the three months ended March 31, 2021 principally related to accident years 2017 and 2018. Prior accident year reserve development recognized for the three months ended March 31, 2020 was due to a reduction in our reserve for potential ECO/XPL claims; prior accident year development recognized in the current period included a reduction to this same reserve of $0.2 million.
A detailed discussion of factors influencing our recognition of loss development is included in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses" and in our December 31, 2020 report on Form 10-K under the same heading. Assumptions used in establishing our reserve are regularly reviewed and updated by management as new data becomes available. Any adjustments necessary are reflected in the then current operations. Due to the
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size of our reserve, even a small percentage adjustment to the assumptions can have a material effect on our results of operations for the period in which the change is made, as was the case in both 2021 and 2020.
Underwriting, Policy Acquisition and Operating Expenses
Our Specialty P&C segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended March 31
($ in thousands)20212020Change
DPAC amortization$12,396 $13,916 $(1,520)(10.9 %)
Management fees1,001 1,832 (831)(45.4 %)
Other underwriting and operating expenses12,949 13,837 (888)(6.4 %)
Total$26,346 $29,585 $(3,239)(10.9 %)
DPAC amortization decreased for the three months ended March 31, 2021 as compared to the same period of 2020 driven by a decrease in earned premium. In addition, the decrease in DPAC amortization during the 2021 three-month period reflected a decrease in compensation-related expenses driven by a reduction in headcount as a result of the 2020 organizational restructuring. Partially offsetting the decrease in DPAC amortization for the 2021 three-month period was a decrease in ceding commission income, which is an offset to expense, from certain of our shared risk arrangements.
Management fees are charged pursuant to a management agreement by the Corporate segment to the operating subsidiaries within our Specialty P&C segment for services provided based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Fluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period. Due to organizational structure enhancements in our Specialty P&C segment during 2020, the extent to which services are provided by the Corporate segment to the operating subsidiaries within the segment decreased effective January 1, 2021. Accordingly, we reduced the fee charged to the segment's operating subsidiaries during the 2021 three-month period.
Other underwriting and operating expenses decreased during the 2021 three-month period as compared to the same period of 2020 driven by decreased operating expenses resulting from the operational and structural changes implemented over the past year and a half. The decrease in operating expenses during the 2021 three-month period also reflected the effect of $1.4 million of one-time expenses incurred during the prior year period primarily related to the restructuring of our HCPL field office organization and, to a lesser extent, a decrease in employer contributions to the ProAssurance Savings Plan in the current period (see Note 17 of the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K). The remaining variance in other underwriting and operating expenses for the 2021 three-month period as compared to the same period of 2020 was comprised of individually insignificant components.
Underwriting Expense Ratio (the Expense Ratio)
Our expense ratio for the Specialty P&C segment was as follows:
 Three Months Ended March 31
 20212020Change
Underwriting expense ratio22.8 %24.6 %(1.8  pts)
The underwriting expense ratio in the current period also included the effect of one-time retroactive premium earned associated with a new assumed reinsurance program (net premiums earned with no associated operating expenses). Excluding the impact of the retroactive premium, the expense ratio for the 2021 three-month period was 23.2% which reflects the impact of a reduction to the management fee charged by the Corporate segment, as previously discussed, as well as a decrease in various operational expenses resulting from improvements over the past year including organizational structure enhancements and improved operating efficiencies. The underwriting expense ratio for the three months ended March 31, 2020 also reflected the effect of one-time expenses related to our HCPL field office reorganization which increased the expense ratio by 1.2 percentage points in the prior year period.
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Segment Results - Lloyd's SyndicatesWorkers' Compensation Insurance
Our Lloyd's SyndicatesWorkers' Compensation Insurance segment includes the results from our participation in certain Syndicates at Lloyd's of London. In additionworkers' compensation products provided to our participation in Syndicate results, we have investments in and other obligations to our Lloyd's Syndicates consisting of a Syndicate Credit Agreement and FAL requirements. For the 2020 underwriting year, our FAL was comprised of investment securities and cash and cash equivalents depositedemployers generally with Lloyd's which at September 30, 2020 had a fair value of approximately $105.8 million,1,000 or fewer employees, as discussed in Note 314 of the Notes to Condensed Consolidated Financial Statements. DuringWorkers' compensation products offered include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market programs. Alternative market programs include program design, fronting, claims administration, risk management, SPC rental, asset management and SPC management services. Alternative market program premiums are 100% ceded to either the third quarterSPCs within our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer for one program. Our Workers' Compensation Insurance segment results reflected pre-tax underwriting profit or loss from these workers' compensation products, exclusive of 2020, we received a return of approximately $32.3 million of cash and cash equivalents from our FAL balances given the reductioninvestment results, which are included in our participation inCorporate segment. Segment results included the results of Syndicate 1729 for the 2020 underwriting year to 29% from 61%.following:
We normally report results from our involvement in Lloyd's Syndicates on a quarter lag, except when information is available that is material to the current period. Furthermore, the investment results associated with our FAL investments and certain U.S. paid administrative expenses are reported concurrently as that information is available on an earlier time frame.
Three Months Ended March 31
($ in thousands)20212020Change
Net premiums written$46,884 $50,312 $(3,428)(6.8 %)
Net premiums earned$40,011 $44,515 $(4,504)(10.1 %)
Other income392 757 (365)(48.2 %)
Net losses and loss adjustment expenses(26,207)(29,769)3,562 (12.0 %)
Underwriting, policy acquisition and operating expenses(12,286)(14,164)1,878 (13.3 %)
Segment results$1,910 $1,339 $571 42.6 %
Net loss ratio65.5%66.9%(1.4 pts)
Underwriting expense ratio30.7%31.8%(1.1 pts)
Lloyd's Syndicate 1729. We provide capital to Syndicate 1729, which covers a range of property and casualty insurance and reinsurance lines in both the U.S. and international markets. The remaining capital for Syndicate 1729 is provided by unrelated third parties, including private names and other corporate members. As previously discussed, we decreased our participation in the results of Syndicate 1729 for the 2020 underwriting year to reduce our exposure and the associated earnings volatility. Due to the quarter lag, this reduced participation was not reflected in our results until the second quarter of 2020. Syndicate 1729's maximum underwriting capacity for the 2020 underwriting year is £135 million (approximately $174 million based on September 30, 2020 exchange rates), of which £39 million (approximately $50 million based on September 30, 2020 exchange rates) is our allocated underwriting capacity.
Lloyd's Syndicate 6131. We are the sole (100%) capital provider to an SPA, Syndicate 6131, which focuses on contingency and specialty property business in both the U.S. and international markets. For the 2020 underwriting year, Syndicate 6131 has a maximum underwriting capacity of £12 million (approximately $16 million based on September 30, 2020 exchange rates). As an SPA, Syndicate 6131 underwrites on a quota share basis with Syndicate 1729. Effective July 1, 2020, Syndicate 6131 entered into a quota share reinsurance agreement with an unaffiliated insurer. Under this agreement, Syndicate 6131 will cede essentially half of the premium assumed from Syndicate 1729 to the unaffiliated insurer. Due to the quarter lag, the effect of this reinsurance arrangement will not be reflected in our results until the fourth quarter of 2020.
In addition to the results of our participation in Lloyd's Syndicates, as discussed above, our Lloyd's Syndicates segment also includes 100% of the results of our wholly owned subsidiaries that support our operations at Lloyd's. For the three and nine months ended September 30, 2020 and 2019, the results of our Lloyd's Syndicates segment were as follows:
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)20202019Change 20202019Change
Gross premiums written$23,862
$30,427
$(6,565)(21.6%) $72,441
$83,247
$(10,806)(13.0%)
Ceded premiums written(4,770)(8,599)3,829
(44.5%) (13,172)(21,660)8,488
(39.2%)
Net premiums written$19,092
$21,828
$(2,736)(12.5%) $59,269
$61,587
$(2,318)(3.8%)
          
Net premiums earned$18,142
$21,295
$(3,153)(14.8%) $61,186
$57,215
$3,971
6.9%
Net investment income951
1,077
(126)(11.7%) 3,236
3,282
(46)(1.4%)
Net realized gains (losses)489
285
204
71.6% 1,100
725
375
51.7%
Other income (loss)411
(165)576
349.1% 219
(278)497
178.8%
Net losses and loss adjustment expenses(9,317)(11,907)2,590
(21.8%) (39,432)(34,640)(4,792)13.8%
Underwriting, policy acquisition and operating expenses(6,938)(9,411)2,473
(26.3%) (23,373)(25,445)2,072
(8.1%)
Income tax benefit (expense)—
161
(161)nm
 29
161
(132)(82.0%)
Segment results$3,738
$1,335
$2,403
180.0% $2,965
$1,020
$1,945
190.7%
          
Net loss ratio51.4%55.9%(4.5 pts)  64.4%60.5%3.9 pts 
Underwriting expense ratio38.2%44.2%(6.0 pts)  38.2%44.5%(6.3 pts) 

Gross Premiums Written
Changes in ourOur workers’ compensation premium volume within our Lloyd's Syndicates segment areis driven by five primary factors: (1) the amount of new business and the channels in which the business is written, (2) our retention of our existing book of business, (3) the premium charged for business that is renewed, which is affected by rates charged and by the amount and typeon our renewal book of coverage an insured chooses to purchase,business, (4) the timing of premium written through multi-period policieschanges in payroll exposure and (5) changes in our participation in the Syndicates.audit premium.
Gross, ceded and net premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums written$72,328 $79,243 $(6,915)(8.7 %)
Less: Ceded premiums written25,444 28,931 (3,487)(12.1 %)
Net premiums written$46,884 $50,312 $(3,428)(6.8 %)
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Gross Premiums Written
Gross premiums written by product were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Traditional business:
Guaranteed cost$38,196 $42,062 $(3,866)(9.2 %)
Policyholder dividend7,520 8,031 (511)(6.4 %)
Deductible2,052 1,926 126 6.5 %
Retrospective(1)
455 344 111 32.3 %
Other1,600 1,781 (181)(10.2 %)
Alternative market business(2)
23,715 25,959 (2,244)(8.6 %)
Change in EBUB estimate(1,210)(860)(350)40.7 %
Total$72,328 $79,243 $(6,915)(8.7 %)
(1) The change in retrospectively-related policies included adjustments that decreased premium by $0.1 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively.
(2) A majority of alternative market premiums are ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment. See further discussion on alternative market gross premiums written in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows.
Gross premiums written decreased during the ninethree months ended September 30,March 31, 2021 as compared to the same period of 2020, consistedwhich primarily reflected a decrease in audit premium, a reduction of property insurance coverages (41%our EBUB estimate and the continuation of totalcompetitive market conditions. Policy audits processed during the first quarter of 2021 resulted in audit premium returned to policyholders totaling $0.8 million as compared to audit premium billed to policyholders of $0.9 million for the same period of 2020. In addition, we reduced our EBUB estimate by $1.2 million and $0.9 million during the three months ended March 31, 2021 and 2020, respectively. The decrease in audit premium processed as well as the reduction of our EBUB estimate primarily reflected the impact of COVID-19 on both actual and expected final payroll audits for policies written prior to the onset of the pandemic in 2020. The competitive market conditions resulted in renewal rate decreases of 3% for the three months ended March 31, 2021 as compared to 4% during the same period of 2020. Additionally, new business written decreased $2.4 million for the three months ended March 31, 2021 as compared to the same period of 2020. The renewal rate decreases and reduction in new business were partially offset by an improvement in renewal retention, which was 90% for the three months ended March 31, 2021 as compared to 83% for the same period in 2020. The 2020 renewal retention was impacted by the reduction in premium funding for a large alternative market program. We retained 100% of the nine workers’ compensation alternative market programs that were up for renewal during the first quarter of 2021.
New business, audit premium, retention and renewal price changes for both the traditional business and the alternative market business are shown in the table below:
Three Months Ended March 31
20212020
($ in millions)Traditional BusinessAlternative Market BusinessSegment
Results		Traditional BusinessAlternative Market BusinessSegment
Results
New business$5.9 $0.8 $6.7 $8.0 $1.1 $9.1 
Audit premium (including EBUB)$(2.2)$0.2 $(2.0)$0.3 $(0.3)$— 
Retention rate (1)
89 %92 %90 %85 %78 %83 %
Change in renewal pricing (2)
(2 %)(5 %)(3 %)(4 %)(6 %)(4 %)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
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Ceded Premiums Written
Ceded premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Premiums ceded to SPCs$20,682 $23,356 $(2,674)(11.4 %)
Premiums ceded to external reinsurers2,974 3,245 (271)(8.4 %)
Premiums ceded to unaffiliated captive insurer3,033 2,603 430 16.5 %
Change in return premium estimate under external reinsurance(474)31 (505)(1,629.0 %)
Estimated revenue share(771)(304)(467)153.6 %
Total ceded premiums written$25,444 $28,931 $(3,487)(12.1 %)
Premiums ceded to SPCs represents alternative market business that is ceded under 100% quota share reinsurance agreements to the SPCs in our Segregated Portfolio Cell Reinsurance segment. Premiums ceded to the unaffiliated captive insurer reflect the alternative market business that is ceded under a 100% quota share reinsurance agreement for one program. The decrease for the three months ended March 31, 2021 primarily reflects the competitive workers' compensation market conditions.
Under our external reinsurance agreement for traditional business, we retain the first $0.5 million in risk insured by us and cede losses in excess of this amount on each loss occurrence under our primary external reinsurance treaty, subject to an AAD, equal to 3.16% of ceded earned premium. Per our reinsurance agreements, we cede premiums related to our traditional business on an earned premium basis. The decrease in premiums ceded to external reinsurers during the 2021 three-month period primarily reflected the decrease in traditional earned premium, partially offset by an increase in reinsurance rates.
Changes in the return premium estimate reflected adjustments to our estimate of expected future recovery of ceded premium based on the underlying loss experience of our reinsurance contracts that include a provision for return premium. We increased our estimate of return premium by $0.5 million during the three months ended March 31, 2021, as compared to a nominal decrease in our estimate for the same period in 2020. The change in estimated return premium for the three months ended March 31, 2021 primarily reflected favorable prior year loss development on previously reported reinsured claims.
Our reinsurance program includes a revenue share agreement with our reinsurance broker under which we share in the broker's revenue above an agreed upon minimum retention. We increased our estimate of the revenue share with our reinsurance broker related to the current contract year during the three months ended March 31, 2021, reflecting an increase in the ceded premium under the reinsurance treaties.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
Three Months Ended March 31
20212020Change
Ceded premiums ratio, as reported31.8 %32.2 %(0.4  pts)
Less the effect of:
Premiums ceded to SPCs (100%)25.9 %24.7 %1.2  pts
Premiums ceded to unaffiliated captive insurers (100%)1.7 %1.2 %0.5  pts
Change in EBUB0.1 %0.1 %—  pts
Change in return premium estimate under external reinsurance(1.1 %)0.1 %(1.2  pts)
Estimated revenue share(1.8 %)(0.6 %)(1.2  pts)
Assumed premiums earned (not ceded to external reinsurers)(0.3 %)(0.2 %)(0.1  pts)
Ceded premiums ratio (related to external reinsurance), less the effects of above7.3 %6.9 %0.4  pts
The above table reflects ceded premiums earned as a percent of gross premiums written), casualty coverages (30%), catastropheearned. As discussed above, we cede premiums related to our traditional business to external reinsurers on an earned premium basis. The increase in the ceded premiums ratio for the three months ended March 31, 2021 as compared to the same period in 2020 primarily reflects the increase in reinsurance coverages (14%), specialty property coverages (9%), contingency coverages (4%)rates for the contract period beginning May 1, 2020.
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Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to SPCs in our Segregated Portfolio Cell Reinsurance segment, external reinsurers and propertythe unaffiliated captive insurer. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Our workers’ compensation policies are twelve month term policies, and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of our insureds' payrolls, changes in our EBUB estimate and premium adjustments related to retrospectively-rated policies. Payroll audits are conducted subsequent to the end of the policy period and any related adjustments are recorded as fully earned in the current period. In addition, we record an estimate for EBUB and evaluate the estimate on a quarterly basis.
Net premiums earned were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums earned$58,632 $65,613 $(6,981)(10.6 %)
Less: Ceded premiums earned18,621 21,098 (2,477)(11.7 %)
Net premiums earned$40,011 $44,515 $(4,504)(10.1 %)
The decrease in net premiums earned during the three months ended March 31, 2021 as compared to the same period of 2020 primarily reflected the pro rata effect of a reduction in net premiums written during the preceding twelve months, a decrease in audit premium and, to a lesser extent, the reduction in our EBUB estimate, partially offset by an increase in broker revenue sharing and, to a lesser extent, return premium estimates under our reinsurance coverages (2%contracts. We reduced our EBUB estimate by $1.2 million and $0.9 million during the three months ended March 31, 2021 and 2020, respectively. The reduction in our EBUB estimate during the current period primarily reflected the impact of COVID-19 on both actual and expected final payroll audits for policies written prior to the onset of the pandemic in 2020. Please see "Item 1A, Risk Factors" in our December 31, 2020 report on Form 10-K for additional information on the economic impact of COVID-19.

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Losses and Loss Adjustment Expenses
We estimate our current accident year loss and loss adjustment expenses based on an expected loss ratio. Incurred losses and loss adjustment expenses for the current accident year are determined by applying the expected loss ratio to net premiums earned for the respective period. The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Calendar year and current accident year net loss ratios by component were as follows:
Three Months Ended March 31
20212020Change
Calendar year net loss ratio65.5 %66.9 %(1.4  pts)
Less impact of prior accident years on the net loss ratio(5.5 %)(3.3 %)(2.2  pts)
Current accident year net loss ratio71.0 %70.2 %0.8  pts
The increase in the current accident year net loss ratio for the three months ended March 31, 2021 primarily reflected the continuation of intense price competition and the resulting renewal rate decreases as well as the effect of lower net premiums earned driven by a reduction in audit premium and our EBUB estimate, as previously discussed. The increase in the current accident year loss ratio was partially offset by favorable claim trends in prior accident year claim results and their impact on our analysis of the current accident year loss estimate. As a result of the COVID-19 pandemic, legislative and regulatory bodies in certain states have changed or are considering changes to compensability requirements and presumptions for certain types of workers related to COVID-19 claims. Such changes could have an adverse impact on the frequency and severity related to COVID-19 claims.
Calendar year incurred losses (excluding IBNR) ceded to our external reinsurers decreased $0.5 million for the three months ended March 31, 2021 as compared to the same period of 2020. There were no current accident year ceded incurred losses (excluding IBNR) during the three months ended March 31, 2021 or 2020, reflecting lower claim severity and the impact of the AAD (see previous discussion under the heading "Ceded Premiums Written"). The decrease in grossceded incurred losses for
the three months ended March 31, 2021 reflects favorable development on prior accident year reinsured claims.
We recognized net favorable prior year development related to our previously established reserve of $2.2 million and $1.5 million for the three months ended March 31, 2021 and 2020, respectively. The net favorable prior year reserve development for the three months ended March 31, 2021 and 2020 reflected overall favorable trends in claim closing patterns. Net favorable development for the 2021 three-month period was primarily related to the 2017 accident year and prior. Net favorable development for the 2020 three-month period was related to the 2015 and 2016 accident years.
Underwriting, Policy Acquisition and Operating Expenses
Underwriting, policy acquisition and operating expenses includes the amortization of commissions, premium taxes and underwriting salaries, which are capitalized and deferred over the related workers’ compensation policy period, net of ceding commissions earned. The capitalization of underwriting salaries can vary as they are subject to the success rate of our contract acquisition efforts. These expenses also include a management fee charged by our Corporate segment, which represents intercompany charges pursuant to a management agreement, and the amortization of intangible assets, primarily related to the acquisition of Eastern by ProAssurance. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary.
Our Workers' Compensation Insurance segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended March 31
($ in thousands)20212020Change
DPAC amortization$6,741 $7,850 $(1,109)(14.1 %)
Management fees542 601 (59)(9.8 %)
Other underwriting and operating expenses8,521 10,032 (1,511)(15.1 %)
SPC ceding commission offset(3,518)(4,319)801 (18.5 %)
Total$12,286 $14,164 $(1,878)(13.3 %)
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The decrease in DPAC amortization for the three months ended March 31, 2021 as compared to the same period in 2020 primarily reflects the decrease in net premiums earned. The decrease in other underwriting and operating expenses for the three months ended March 31, 2021 as compared to the same period of 2020 primarily reflected a decrease in compensation-related costs and, to a lesser extent, a decrease in travel-related costs related to the COVID-19 pandemic. The decrease in compensation-related costs during the 2021 three-month period was driven by a reduction in headcount as a result of the 2020 organizational restructuring and, to a lesser extent, a decrease in employer contributions to the ProAssurance Savings Plan (see Note 17 of the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K).
As previously discussed, alternative market premiums written duringthrough our Workers' Compensation Insurance segment's alternative market business unit are 100% ceded, less a ceding commission, to either the 2020 three-SPCs in our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer. The ceding commission consists of an amount for fronting fees, cell rental fees, commissions, premium taxes and nine-month periodsrisk management fees. The fronting fees, commissions, premium taxes and risk management fees are recorded as an offset to underwriting, policy acquisition and operating expenses. Cell rental fees are recorded as a component of other income and claims administration fees are recorded as ceded ULAE. The decrease in SPC ceding commissions earned for the three months ended March 31, 2021 as compared to the same respective periodsperiod of 2019 was2020, primarily drivenreflects the decrease in alternative market ceded earned premium.
Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Three Months Ended March 31
20212020Change
Underwriting expense ratio, as reported30.7 %31.8 %(1.1  pts)
Less estimated ratio increase (decrease) attributable to:
Impact of ceding commissions received from SPCs2.9 %2.3 %0.6  pts
Retrospective premium adjustment— %0.1 %(0.1  pts)
Impact of audit premium1.0 %(0.2 %)1.2  pts
Change in return premium estimate under external reinsurance(0.2 %)— %(0.2  pts)
Estimated revenue share(0.4 %)(0.1 %)(0.3  pts)
Underwriting expense ratio, less listed effects27.4 %29.7 %(2.3  pts)
Excluding the items noted in the table above, the expense ratio decreased for the three months ended March 31, 2021, primarily reflecting the decrease in compensation-related costs and, to a lesser extent, travel-related costs, partially offset by the decrease in net premiums earned.
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Segment Results - Segregated Portfolio Cell Reinsurance
The Segregated Portfolio Cell Reinsurance segment includes the results (underwriting profit or loss, plus investment results, net of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, our decreased participationCayman Islands SPC operations, as discussed in Note 14 of the Notes to Condensed Consolidated Financial Statements. SPCs are segregated pools of assets and liabilities that provide an insurance facility for a defined set of risks. Assets of each SPC are solely for the benefit of that individual cell and each SPC is solely responsible for the liabilities of that individual cell. Assets of one SPC are statutorily protected from the creditors of the others. Each SPC is owned, fully or in part, by an agency, group or association and the results of the SPCs are attributable to the participants of that cell. We participate to a varying degree in the results of Syndicate 1729,selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC results attributable to external cell participants are reported as an SPC dividend (expense) income in our Segregated Portfolio Cell Reinsurance segment. In addition, our Segregated Portfolio Cell Reinsurance segment includes the investment results of the SPCs as the investments are solely for the benefit of the cell participants and investment results attributable to external cell participants are reflected in the SPC dividend (expense) income. As of March 31, 2021, there were 27 (3 inactive) SPCs. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from our Workers' Compensation Insurance and Specialty P&C segments. As of March 31, 2021, there were two SPCs that assumed both workers' compensation insurance and healthcare professional liability insurance and one SPC that assumed only healthcare professional liability insurance.
Segment results reflects our share of the underwriting and investment results of the SPCs in which we participate, and included the following:
Three Months Ended March 31
($ in thousands)20212020Change
Net premiums written$22,188 $23,990 $(1,802)(7.5 %)
Net premiums earned$15,884 $16,980 $(1,096)(6.5 %)
Net investment income221 254 (33)(13.0 %)
Net realized gains (losses)987 (3,207)4,194 130.8 %
Other income1 136 (135)(99.3 %)
Net losses and loss adjustment expenses(9,425)(9,352)(73)0.8 %
Underwriting, policy acquisition and operating expenses(5,025)(5,079)54 (1.1 %)
SPC U.S. federal income tax expense (1)
(356)(222)(134)60.4 %
SPC net results2,287 (490)2,777 566.7 %
SPC dividend (expense) income (2)
(1,742)508 (2,250)442.9 %
Segment results (3)
$545 $18 $527 2,927.8 %
Net loss ratio59.3 %55.1 %4.2 pts
Underwriting expense ratio31.6 %29.9 %1.7 pts
(1) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
(2) Represents the net (profit) loss attributable to external cell participants.
(3) Represents our share of the net profit (loss) of the SPCs in which we participate.


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Premiums Written
Premiums in our Segregated Portfolio Cell Reinsurance segment are assumed from either our Workers' Compensation Insurance or Specialty P&C segments. Premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of the existing book of business, (3) premium rates charged on the renewal book of business and, for workers' compensation business, (4) changes in payroll exposure and (5) audit premium.
Gross, ceded and net premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums written$25,151 $27,140 $(1,989)(7.3 %)
Less: Ceded premiums written2,963 3,150 (187)(5.9 %)
Net premiums written$22,188 $23,990 $(1,802)(7.5 %)
Gross Premiums Written
Gross premiums written reflected reinsurance premiums assumed by component as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Workers' compensation$20,682 $23,356 $(2,674)(11.4 %)
Healthcare professional liability4,469 3,784 685 18.1 %
Gross Premiums Written$25,151 $27,140 $(1,989)(7.3 %)
Gross premiums written for the three months ended March 31, 2021 and 2020 were primarily comprised of workers' compensation coverages assumed from our Workers' Compensation Insurance segment. The decrease in workers' compensation gross premiums written during the three months ended March 31, 2021 as compared to the same period in 2020 primarily reflected the competitive workers’ compensation market conditions and the resulting renewal rate decreases of 5%, partially offset by volume increasesan improvement in the renewal retention rate. The renewal retention rate for the three months ended March 31, 2020 included the impact of a reduction in premium funding for a large workers' compensation alternative market program. We do not participate in this program; therefore, the reduction in premium funding had no effect on renewal business andthe segment results for the three months ended March 31, 2020. The increase in healthcare professional liability gross premiums written during the three months ended March 31, 2021 as compared to the same period in 2020 was driven by renewal pricing increases, primarily property insurance coverages,due to increases in exposure for one program. We retained 100% of the eight workers' compensation programs and one healthcare professional liability program up for renewal during the three months ended March 31, 2021.
New business, audit premium, retention and renewal price changes for the assumed workers' compensation premium is shown in the table below:
Three Months Ended March 31
($ in millions)20212020
New business$0.8 $1.1 
Audit premium (including EBUB)$0.2 $(0.3)
Retention rate (1)
92 %78 %
Change in renewal pricing (2)
(5 %)(6 %)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
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Ceded Premiums Written
Ceded premiums written were as wellfollows:
Three Months Ended March 31
($ in thousands)20212020Change
Ceded premiums written$2,963 $3,150 $(187)(5.9 %)
For the workers' compensation business, each SPC has in place its own external reinsurance arrangements. The healthcare professional liability business is assumed net of reinsurance from our Specialty P&C segment; therefore, there are no ceded premiums related to the healthcare professional liability business reflected in the table above. The risk retention for each loss occurrence for the workers' compensation business ranges from $0.3 million to $0.4 million based on the program, with limits up to $119.7 million. In addition, each program has aggregate reinsurance coverage between $1.1 million and $2.1 million on a program year basis. Per the SPC external reinsurance agreements, premiums are ceded on a written premium basis. The decrease in ceded premiums written during the three months ended March 31, 2021 as newcompared to the same period of 2020, was driven by a decrease in workers' compensation gross premiums written, and was partially offset by an increase in reinsurance rates for programs with renewal dates on or after May 1, 2020. External reinsurance rates vary based on the alternative market program.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
Three Months Ended March 31
20212020Change
Ceded premiums ratio14.3%13.5%0.8 pts
The above table reflects ceded premiums as a percent of gross premiums written for the workers' compensation business only; healthcare professional liability business is assumed net of reinsurance, as discussed above. The ceded premiums ratio reflects the weighted average reinsurance rates of all SPC programs. The increase in the ceded premiums ratio for the three months ended March 31, 2021 primarily reflects an increase in reinsurance rates for programs renewing on or after May 1, 2020.
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that the SPCs cede to external reinsurers. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Policies ceded to the SPCs are twelve month term policies and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of workers' compensation insureds' payrolls. Payroll audits are conducted subsequent to the end of the policy period and any related adjustments are recorded as fully earned in the current period.
Gross, ceded and net premiums earned were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums earned$17,967 $19,190 $(1,223)(6.4 %)
Less: Ceded premiums earned2,083 2,210 (127)(5.7 %)
Net premiums earned$15,884 $16,980 $(1,096)(6.5 %)
The decrease in net premiums earned during the three months ended March 31, 2021 primarily reflected the pro rata effect of a reduction in net premiums written during the preceding twelve months.
Net Investment Income and Net Realized Investment Gains (Losses)
Net investment income for the three months ended March 31, 2021 and 2020 was primarily property insuranceattributable to interest earned on available-for-sale fixed maturity investments, which primarily includes investment-grade corporate debt securities. We recognized $1.0 million of net realized investment gains during the three months ended March 31, 2021, which primarily reflected an increase in the fair value on our equity portfolio. We recognized $3.2 million of net realized investment losses during the three months ended March 31, 2020 driven by changes in the fair value of our equity portfolio attributable to the disruptions in global financial markets related to COVID-19.
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Losses and casualty coverages.Loss Adjustment Expenses
The following table summarizes the calendar year net loss ratios by separating losses between the current accident year and all prior accident years. The current accident year net loss ratio reflected the aggregate loss ratio for all programs. Loss reserves are estimated for each program on a quarterly basis. Due to the size of some of the programs, quarterly loss results can create volatility in the current accident year net loss ratio from period to period.
Calendar year and current accident year net loss ratios for the three months ended March 31, 2021 and 2020 was as follows:
Three Months Ended March 31
20212020Change
Calendar year net loss ratio59.3 %55.1 %4.2  pts
Less impact of prior accident years on the net loss ratio(9.6 %)(10.6 %)1.0  pts
Current accident year net loss ratio68.9 %65.7 %3.2  pts
The increase in the current accident year net loss ratio for the 2021 three-month period of 3.2 percentage points as compared to the same period of 2020 primarily reflected the continuation of intense price competition and the resulting renewal rate decreases in the workers' compensation business. As a result of the COVID-19 pandemic, legislative and regulatory bodies in certain states have changed or are considering changes to compensability requirements and presumptions for certain types of workers related to COVID-19 claims. Such changes could have an adverse impact on the frequency and severity related to COVID-19 claims.
Calendar year incurred losses (excluding IBNR) ceded to our external reinsurers increased $3.1 million for the 2021 three-month period as compared to the same period of 2020, primarily reflecting the impact of three large claims reported in the first quarter of 2021 that occurred in late 2020. Current accident year ceded incurred losses (excluding IBNR) decreased $0.4 million for the 2021 three-month period, as compared to the same period of 2020.
We recognized net favorable prior year reserve development of $1.4 million and $1.8 million for the three months ended March 31, 2021 and 2020, respectively. The net favorable prior year reserve development for the three months ended March 31, 2021 related entirely to workers’ compensation business, which primarily reflected overall favorable trends in claim closing patterns primarily in the 2018 and 2019 accident years. The net favorable prior year development for the three months ended March 31, 2020 included $0.8 million and $1.0 million related to the workers' compensation and healthcare professional liability business, respectively. The workers' compensation favorable development was primarily related to the 2018 accident year, while the healthcare professional liability favorable development was primarily related to the 2016 through 2018 accident years.
Underwriting, Policy Acquisition and Operating Expenses
Our Segregated Portfolio Cell Reinsurance segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended March 31
($ in thousands)20212020Change
DPAC amortization$4,636 $5,135 $(499)(9.7 %)
Other underwriting and operating expenses389 (56)445 794.6 %
Total$5,025 $5,079 $(54)(1.1 %)
DPAC amortization primarily represents ceding commissions, which vary by program and are paid to our Workers' Compensation Insurance and Specialty P&C segments for premiums assumed. Ceding commissions include an amount for fronting fees, commissions, premium taxes and risk management fees, which are reported as an offset to underwriting, policy acquisition and operating expenses within our Workers' Compensation Insurance and Specialty P&C segments. In addition, ceding commissions paid to our Workers' Compensation Insurance segment include cell rental fees which are recorded as other income within our Workers' Compensation Insurance segment.
Other underwriting and operating expenses primarily include bank fees, professional fees and bad debt expense. The increase in other underwriting and operating expenses for the three months ended March 31, 2021 as compared to the same period in 2020 primarily reflected the effect of recoveries of premiums receivables during the first quarter of 2020 that were previously written off, which resulted in a reduction to our allowance for expected credit losses and, to a lesser extent, an increase in policyholder dividend expense related to one SPC program.
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Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Three Months Ended March 31
20212020Change
Underwriting expense ratio, as reported31.6%29.9%1.7 pts
Less: impact of audit premium on expense ratio(0.3%)0.6%(0.9 pts)
Underwriting expense ratio, excluding the effect of audit premium31.9%29.3%2.6 pts
Excluding the effect of audit premium, the increase in the underwriting expense ratio during the 2021 three-month period primarily reflected the effect of the aforementioned premiums receivable recoveries during the first quarter of 2020 and the increase in policyholder dividend expense, partially offset by a decrease in the weighted average ceding commission percentage of all SPC programs.
SPC U.S. Federal Income Tax Expense
The SPCs at Inova Re have made a 953(d) election under the U.S. Internal Revenue Code and are subject to U.S. federal income tax. U.S. federal income taxes incurred totaled $0.4 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
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Ceded Premiums Written
Ceded premiums represent the amounts owed to our reinsurers for their assumption of a portion of our losses. For our HCPL and Medical Technology Liability excess of loss reinsurance arrangements in effect prior to October 1, 2020, we generally retained the first $1 million in risk insured by us and ceded coverages in excess of this amount. Effective October 1, 2020, we generally retain the first $2 million in risk insured by us and cede coverages in excess of this amount. For our HCPL coverages, we also retain from 0% to 14.5% of the next $24 million of risk for coverages in excess of $2 million. For our Medical Technology Liability treaty which also renewed effective October 1, 2020, we also retain 2.5% of the next $8 million of risk for coverages in excess of $2 million. These changes in terms for both our HCPL and Medical Technology Liability treaties resulted in a reduction to the gross rate paid for the treaty year effective October 1, 2020. We pay our reinsurers a ceding premium in exchange for their accepting the risk, and in certain of our excess of loss arrangements, the ultimate amount of which is determined by the loss experience of the business ceded, subject to certain minimum and maximum amounts.
Given the length of time that it takes to resolve our claims, many years may elapse before all losses recoverable under a reinsurance arrangement are known. As a part of the process of estimating our loss reserve we also make estimates regarding the amounts recoverable under our reinsurance arrangements. As a result, we may have an adjustment to our estimate of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. Any changes to estimates of premiums ceded related to prior accident years are fully earned in the period the changes in estimates occur.
Ceded premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Excess of loss reinsurance arrangements (1)
$7,678 $8,617 $(939)(10.9 %)
Other shared risk arrangements (2)
3,963 10,864 (6,901)(63.5 %)
Premium ceded to SPCs (3)
4,469 3,784 685 18.1 %
Other ceded premiums written866 861 5 0.6 %
Total ceded premiums written$16,976 $24,126 $(7,150)(29.6 %)
(1) We generally reinsure risks under our excess of loss reinsurance arrangements pursuant to which the reinsurers agree to assume all or a portion of all risks that we insure above our individual risk retention levels, up to the maximum individual limits offered. Premium due to reinsurers also fluctuates with the volume of written premium subject to cession under the arrangement. In certain of our excess of loss reinsurance arrangements, the premium due to the reinsurer is determined by the loss experience of that business reinsured, subject to certain minimum and maximum amounts. The decrease in ceded premiums written under our excess of loss reinsurance arrangements during the 2021 three-month period as compared to
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the same period of 2020 primarily reflected a decrease in the overall volume of gross premiums written subject to cession and, to a lesser extent, the reduced rate on the treaty year effective October 1, 2020.
(2) We have entered into various shared risk arrangements, including quota share, fronting, and captive arrangements, with certain large healthcare systems and other insurance entities. While we cede a large portion of the premium written under these arrangements, they provide us an opportunity to grow net premium through strategic partnerships. These arrangements include our Ascension Health program and, prior to the fourth quarter of 2020, our CAPAssurance program. Our CAPAssurance program was mutually dissolved on October 1, 2020 as a result of our acquisition of NORCAL and their concentration in the state of California. In addition, we entered into a new shared risk arrangement with a regional hospital group during the current period. The decrease in ceded premiums written under our shared risk arrangements during the 2021 three-month period as compared to the same period of 2020 was primarily due to the aforementioned dissolution of our arrangement with CAPAssurance, our non-renewal of two large policies in certain of our other shared risk arrangements effective May 1, 2020 and, to a lesser extent, a decrease in premium ceded to our Ascension Health program, somewhat offset by the premium ceded under our new shared risk arrangement, as previously discussed.
(3) As previously discussed, as a part of our alternative market solutions, all or a portion of certain healthcare premium written is ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. See the Segment Results - Segregated Portfolio Cell Reinsurance section for further discussion on the cession to the SPCs from our Specialty P&C segment. The increase in premiums ceded to SPCs during the 2021 three-month period as compared to the same period of 2020 was driven by renewal pricing increases (see discussion in footnote 10 under the heading "Gross Premiums Written").
Ceded Premiums Ratio
The ceded premiums ratio was as follows:
Three Months Ended March 31
 20212020Change
Ceded premiums ratio12.3%15.5%(3.2 pts)
The decrease in the ceded premiums ratio during the 2021 three-month period was primarily due to a decrease in premiums ceded under our shared risk arrangements and, to a lesser extent, the effect of the aforementioned assumed reinsurance program entered into during the current period with a regional hospital group (increase in gross premiums written with no premium ceded). See further discussion on the assumed reinsurance program in footnote 5 under the heading "Gross Premiums Written" and additional discussion on our shared risk arrangements above under the heading "Ceded Premiums Written."
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to our reinsurers for their assumption of a portion of our losses. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Generally, our policies carry a term of one year; however, prior to the third quarter of 2020, we wrote certain Standard Physician policies with a twenty-four month term, and a few of our Medical Technology Liability policies have a multi-year term. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. Retroactive coverage premiums are 100% earned at the inception of the contract, as all of the associated underlying loss events occurred in the past. Additionally, any ceded premium changes due to changes to estimates of premiums owed under reinsurance agreements for prior accident years are fully earned in the period of change.
Net premiums earned were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums earned$132,060 $139,023 $(6,963)(5.0 %)
Less: Ceded premiums earned16,447 18,664 (2,217)(11.9 %)
Net premiums earned$115,613 $120,359 $(4,746)(3.9 %)
Gross premiums earned during the 2021 three-month period included $2.3 million of retroactive premium written and fully earned associated with an assumed reinsurance program (see previous discussion in footnote 5 under the heading "Gross Premiums Written"). After removing the impact of the retroactive premium, gross premiums earned decreased $9.3 million during the 2021 three-month period as compared to the same period of 2020 driven by the pro rata effect of a decrease in the volume of written premium during the preceding twelve months, predominantly in our Specialty line of business, due to our re-
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underwriting efforts and, to a lesser extent, the dissolution of our arrangement with CAPAssurance, partially offset by two large tail policies written and fully earned in the current period.
The decrease in ceded premiums earned during the 2021 three-month period as compared to the same period of 2020 was driven by the pro rata effect of a decrease in premium ceded under our shared risk and excess of loss arrangements during the preceding twelve months.
Losses and Loss Adjustment Expenses
The determination of calendar year losses involves the actuarial evaluation of incurred losses for the current accident year and the actuarial re-evaluation of incurred losses for prior accident years, including an evaluation of the reserve amounts required for ECO/XPL losses. As part of the review of our prior accident year reserves, we also make estimates of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. This analysis may result in reductions to estimates of premiums owed under reinsurance agreements for prior accident years which impacts net premiums earned (the denominator of the net loss ratio) in the period the adjustment is made; no such adjustments were made during the three months ended March 31, 2021 or 2020. See previous discussion under the heading "Ceded Premiums Written" for additional information.
Accident year refers to the accounting period in which the insured event becomes a liability of the insurer. For claims-made policies, which represent the majority of the premiums written in our Specialty P&C segment, the insured event generally becomes a liability when the event is first reported to us. For occurrence policies, the insured event becomes a liability when the event takes place. For retroactive coverages, the insured event becomes a liability at inception of the underlying contract. We believe that measuring losses on an accident year basis is the best measure of the underlying profitability of the premiums earned in that period, since it associates policy premiums earned with the estimate of the losses incurred related to those policy premiums.
The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years.
The net loss ratios for our Specialty P&C segment were as follows:
Net Loss Ratios (1)
Three Months Ended March 31
20212020Change
Calendar year net loss ratio87.5 %92.2 %(4.7  pts)
Less impact of prior accident years on the net loss ratio(2.3 %)(2.0 %)(0.3  pts)
Current accident year net loss ratio(2)
89.8 %94.2 %(4.4  pts)
(1)Net losses, as specified, divided by net premiums earned.
(2)For the three months ended March 31, 2021, our current accident year net loss ratio improved 4.4 percentage points as compared to the same period of 2020 driven by decreases to certain loss ratios during the current period in our Standard Physician and Specialty lines of business as we continue to recognize the beneficial impacts of our re-underwriting efforts and focus on rate adequacy.
We re-evaluate our previously established reserve each quarter based upon the most recently completed actuarial analysis supplemented by any new analysis, information or trends that have emerged since the date of that study. We also take into account currently available industry trend information. We observed a reduction in claims frequency in 2020 that has continued into 2021, some of which is likely associated with the COVID-19 pandemic including the disruption of the court systems; however, we continue to remain cautious in recognizing these favorable frequency trends in our current accident year reserve due to the possibility of delays in reporting and uncertainty surrounding the length and severity of the pandemic.
We recognized net favorable prior year reserve development of $2.7 million and $2.4 million for the three months ended March 31, 2021 and 2020, respectively. Development recognized during the three months ended March 31, 2021 principally related to accident years 2017 and 2018. Prior accident year reserve development recognized for the three months ended March 31, 2020 was due to a reduction in our reserve for potential ECO/XPL claims; prior accident year development recognized in the current period included a reduction to this same reserve of $0.2 million.
A detailed discussion of factors influencing our recognition of loss development is included in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses" and in our December 31, 2020 report on Form 10-K under the same heading. Assumptions used in establishing our reserve are regularly reviewed and updated by management as new data becomes available. Any adjustments necessary are reflected in the then current operations. Due to the
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size of our reserve, even a small percentage adjustment to the assumptions can have a material effect on our results of operations for the period in which the change is made, as was the case in both 2021 and 2020.
Underwriting, Policy Acquisition and Operating Expenses
Our Specialty P&C segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended March 31
($ in thousands)20212020Change
DPAC amortization$12,396 $13,916 $(1,520)(10.9 %)
Management fees1,001 1,832 (831)(45.4 %)
Other underwriting and operating expenses12,949 13,837 (888)(6.4 %)
Total$26,346 $29,585 $(3,239)(10.9 %)
DPAC amortization decreased for the three months ended March 31, 2021 as compared to the same period of 2020 driven by a decrease in earned premium. In addition, the decrease in DPAC amortization during the 2021 three-month period reflected a decrease in compensation-related expenses driven by a reduction in headcount as a result of the 2020 organizational restructuring. Partially offsetting the decrease in DPAC amortization for the 2021 three-month period was a decrease in ceding commission income, which is an offset to expense, from certain of our shared risk arrangements.
Management fees are charged pursuant to a management agreement by the Corporate segment to the operating subsidiaries within our Specialty P&C segment for services provided based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Fluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period. Due to organizational structure enhancements in our Specialty P&C segment during 2020, the extent to which services are provided by the Corporate segment to the operating subsidiaries within the segment decreased effective January 1, 2021. Accordingly, we reduced the fee charged to the segment's operating subsidiaries during the 2021 three-month period.
Other underwriting and operating expenses decreased during the 2021 three-month period as compared to the same period of 2020 driven by decreased operating expenses resulting from the operational and structural changes implemented over the past year and a half. The decrease in operating expenses during the 2021 three-month period also reflected the effect of $1.4 million of one-time expenses incurred during the prior year period primarily related to the restructuring of our HCPL field office organization and, to a lesser extent, a decrease in employer contributions to the ProAssurance Savings Plan in the current period (see Note 17 of the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K). The remaining variance in other underwriting and operating expenses for the 2021 three-month period as compared to the same period of 2020 was comprised of individually insignificant components.
Underwriting Expense Ratio (the Expense Ratio)
Our expense ratio for the Specialty P&C segment was as follows:
 Three Months Ended March 31
 20212020Change
Underwriting expense ratio22.8 %24.6 %(1.8  pts)
The underwriting expense ratio in the current period also included the effect of one-time retroactive premium earned associated with a new assumed reinsurance program (net premiums earned with no associated operating expenses). Excluding the impact of the retroactive premium, the expense ratio for the 2021 three-month period was 23.2% which reflects the impact of a reduction to the management fee charged by the Corporate segment, as previously discussed, as well as a decrease in various operational expenses resulting from improvements over the past year including organizational structure enhancements and improved operating efficiencies. The underwriting expense ratio for the three months ended March 31, 2020 also reflected the effect of one-time expenses related to our HCPL field office reorganization which increased the expense ratio by 1.2 percentage points in the prior year period.
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Segment Results - Workers' Compensation Insurance
Our Workers' Compensation Insurance segment includes workers' compensation products provided to employers generally with 1,000 or fewer employees, as discussed in Note 14 of the Notes to Condensed Consolidated Financial Statements. Workers' compensation products offered include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market programs. Alternative market programs include program design, fronting, claims administration, risk management, SPC rental, asset management and SPC management services. Alternative market program premiums are 100% ceded to either the SPCs within our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer for one program. Our Workers' Compensation Insurance segment results reflected pre-tax underwriting profit or loss from these workers' compensation products, exclusive of investment results, which are included in our Corporate segment. Segment results included the following:
Three Months Ended March 31
($ in thousands)20212020Change
Net premiums written$46,884 $50,312 $(3,428)(6.8 %)
Net premiums earned$40,011 $44,515 $(4,504)(10.1 %)
Other income392 757 (365)(48.2 %)
Net losses and loss adjustment expenses(26,207)(29,769)3,562 (12.0 %)
Underwriting, policy acquisition and operating expenses(12,286)(14,164)1,878 (13.3 %)
Segment results$1,910 $1,339 $571 42.6 %
Net loss ratio65.5%66.9%(1.4 pts)
Underwriting expense ratio30.7%31.8%(1.1 pts)

Premiums Written
Our workers’ compensation premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of our existing book of business, (3) premium rates charged on our renewal book of business, (4) changes in payroll exposure and (5) audit premium.
Gross, ceded and net premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums written$72,328 $79,243 $(6,915)(8.7 %)
Less: Ceded premiums written25,444 28,931 (3,487)(12.1 %)
Net premiums written$46,884 $50,312 $(3,428)(6.8 %)
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Gross Premiums Written
Gross premiums written by product were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Traditional business:
Guaranteed cost$38,196 $42,062 $(3,866)(9.2 %)
Policyholder dividend7,520 8,031 (511)(6.4 %)
Deductible2,052 1,926 126 6.5 %
Retrospective(1)
455 344 111 32.3 %
Other1,600 1,781 (181)(10.2 %)
Alternative market business(2)
23,715 25,959 (2,244)(8.6 %)
Change in EBUB estimate(1,210)(860)(350)40.7 %
Total$72,328 $79,243 $(6,915)(8.7 %)
(1) The change in retrospectively-related policies included adjustments that decreased premium by $0.1 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively.
(2) A majority of alternative market premiums are ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment. See further discussion on alternative market gross premiums written in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows.
Gross premiums written decreased during the three months ended March 31, 2021 as compared to the same period of 2020, which primarily reflected a decrease in audit premium, a reduction of our EBUB estimate and the continuation of competitive market conditions. Policy audits processed during the first quarter of 2021 resulted in audit premium returned to policyholders totaling $0.8 million as compared to audit premium billed to policyholders of $0.9 million for the same period of 2020. In addition, we reduced our EBUB estimate by $1.2 million and $0.9 million during the three months ended March 31, 2021 and 2020, respectively. The decrease in audit premium processed as well as the reduction of our EBUB estimate primarily reflected the impact of COVID-19 on both actual and expected final payroll audits for policies written prior to the onset of the pandemic in 2020. The competitive market conditions resulted in renewal rate decreases of 3% for the three months ended March 31, 2021 as compared to 4% during the same period of 2020. Additionally, new business written decreased $2.4 million for the three months ended March 31, 2021 as compared to the same period of 2020. The renewal rate decreases and reduction in new business were partially offset by an improvement in renewal retention, which was 90% for the three months ended March 31, 2021 as compared to 83% for the same period in 2020. The 2020 renewal retention was impacted by the reduction in premium funding for a large alternative market program. We retained 100% of the nine workers’ compensation alternative market programs that were up for renewal during the first quarter of 2021.
New business, audit premium, retention and renewal price changes for both the traditional business and the alternative market business are shown in the table below:
Three Months Ended March 31
20212020
($ in millions)Traditional BusinessAlternative Market BusinessSegment
Results		Traditional BusinessAlternative Market BusinessSegment
Results
New business$5.9 $0.8 $6.7 $8.0 $1.1 $9.1 
Audit premium (including EBUB)$(2.2)$0.2 $(2.0)$0.3 $(0.3)$— 
Retention rate (1)
89 %92 %90 %85 %78 %83 %
Change in renewal pricing (2)
(2 %)(5 %)(3 %)(4 %)(6 %)(4 %)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
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Ceded Premiums Written
Ceded premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Premiums ceded to SPCs$20,682 $23,356 $(2,674)(11.4 %)
Premiums ceded to external reinsurers2,974 3,245 (271)(8.4 %)
Premiums ceded to unaffiliated captive insurer3,033 2,603 430 16.5 %
Change in return premium estimate under external reinsurance(474)31 (505)(1,629.0 %)
Estimated revenue share(771)(304)(467)153.6 %
Total ceded premiums written$25,444 $28,931 $(3,487)(12.1 %)
Premiums ceded to SPCs represents alternative market business that is ceded under 100% quota share reinsurance agreements to the SPCs in our Segregated Portfolio Cell Reinsurance segment. Premiums ceded to the unaffiliated captive insurer reflect the alternative market business that is ceded under a 100% quota share reinsurance agreement for one program. The decrease for the three months ended March 31, 2021 primarily reflects the competitive workers' compensation market conditions.
Under our external reinsurance agreement for traditional business, we retain the first $0.5 million in risk insured by us and cede losses in excess of this amount on each loss occurrence under our primary external reinsurance treaty, subject to an AAD, equal to 3.16% of ceded earned premium. Per our reinsurance agreements, we cede premiums related to our traditional business on an earned premium basis. The decrease in premiums ceded to external reinsurers during the 2021 three-month period primarily reflected the decrease in traditional earned premium, partially offset by an increase in reinsurance rates.
Changes in the return premium estimate reflected adjustments to our estimate of expected future recovery of ceded premium based on the underlying loss experience of our reinsurance contracts that include a provision for return premium. We increased our estimate of return premium by $0.5 million during the three months ended March 31, 2021, as compared to a nominal decrease in our estimate for the same period in 2020. The change in estimated return premium for the three months ended March 31, 2021 primarily reflected favorable prior year loss development on previously reported reinsured claims.
Our reinsurance program includes a revenue share agreement with our reinsurance broker under which we share in the broker's revenue above an agreed upon minimum retention. We increased our estimate of the revenue share with our reinsurance broker related to the current contract year during the three months ended March 31, 2021, reflecting an increase in the ceded premium under the reinsurance treaties.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
Three Months Ended March 31
20212020Change
Ceded premiums ratio, as reported31.8 %32.2 %(0.4  pts)
Less the effect of:
Premiums ceded to SPCs (100%)25.9 %24.7 %1.2  pts
Premiums ceded to unaffiliated captive insurers (100%)1.7 %1.2 %0.5  pts
Change in EBUB0.1 %0.1 %—  pts
Change in return premium estimate under external reinsurance(1.1 %)0.1 %(1.2  pts)
Estimated revenue share(1.8 %)(0.6 %)(1.2  pts)
Assumed premiums earned (not ceded to external reinsurers)(0.3 %)(0.2 %)(0.1  pts)
Ceded premiums ratio (related to external reinsurance), less the effects of above7.3 %6.9 %0.4  pts
The above table reflects ceded premiums earned as a percent of gross premiums earned. As discussed above, we cede premiums related to our traditional business to external reinsurers on an earned premium basis. The increase in the ceded premiums ratio for the three months ended March 31, 2021 as compared to the same period in 2020 primarily reflects the increase in reinsurance rates for the contract period beginning May 1, 2020.
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Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to SPCs in our Segregated Portfolio Cell Reinsurance segment, external reinsurers and the unaffiliated captive insurer. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Our workers’ compensation policies are twelve month term policies, and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of our insureds' payrolls, changes in our EBUB estimate and premium adjustments related to retrospectively-rated policies. Payroll audits are conducted subsequent to the end of the policy period and any related adjustments are recorded as fully earned in the current period. In addition, we record an estimate for EBUB and evaluate the estimate on a quarterly basis.
Net premiums earned were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums earned$58,632 $65,613 $(6,981)(10.6 %)
Less: Ceded premiums earned18,621 21,098 (2,477)(11.7 %)
Net premiums earned$40,011 $44,515 $(4,504)(10.1 %)
The decrease in net premiums earned during the three months ended March 31, 2021 as compared to the same period of 2020 primarily reflected the pro rata effect of a reduction in net premiums written during the preceding twelve months, a decrease in audit premium and, to a lesser extent, the reduction in our EBUB estimate, partially offset by an increase in broker revenue sharing and, to a lesser extent, return premium estimates under our reinsurance contracts. We reduced our EBUB estimate by $1.2 million and $0.9 million during the three months ended March 31, 2021 and 2020, respectively. The reduction in our EBUB estimate during the current period primarily reflected the impact of COVID-19 on both actual and expected final payroll audits for policies written prior to the onset of the pandemic in 2020. Please see "Item 1A, Risk Factors" in our December 31, 2020 report on Form 10-K for additional information on the economic impact of COVID-19.

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Losses and Loss Adjustment Expenses
We estimate our current accident year loss and loss adjustment expenses based on an expected loss ratio. Incurred losses and loss adjustment expenses for the current accident year are determined by applying the expected loss ratio to net premiums earned for the respective period. The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Calendar year and current accident year net loss ratios by component were as follows:
Three Months Ended March 31
20212020Change
Calendar year net loss ratio65.5 %66.9 %(1.4  pts)
Less impact of prior accident years on the net loss ratio(5.5 %)(3.3 %)(2.2  pts)
Current accident year net loss ratio71.0 %70.2 %0.8  pts
The increase in the current accident year net loss ratio for the three months ended March 31, 2021 primarily reflected the continuation of intense price competition and the resulting renewal rate decreases as well as the effect of lower net premiums earned driven by a reduction in audit premium and our EBUB estimate, as previously discussed. The increase in the current accident year loss ratio was partially offset by favorable claim trends in prior accident year claim results and their impact on our analysis of the current accident year loss estimate. As a result of the COVID-19 pandemic, legislative and regulatory bodies in certain states have changed or are considering changes to compensability requirements and presumptions for certain types of workers related to COVID-19 claims. Such changes could have an adverse impact on the frequency and severity related to COVID-19 claims.
Calendar year incurred losses (excluding IBNR) ceded to our external reinsurers decreased $0.5 million for the three months ended March 31, 2021 as compared to the same period of 2020. There were no current accident year ceded incurred losses (excluding IBNR) during the three months ended March 31, 2021 or 2020, reflecting lower claim severity and the impact of the AAD (see previous discussion under the heading "Ceded Premiums Written"). The decrease in ceded incurred losses for
the three months ended March 31, 2021 reflects favorable development on prior accident year reinsured claims.
We recognized net favorable prior year development related to our previously established reserve of $2.2 million and $1.5 million for the three months ended March 31, 2021 and 2020, respectively. The net favorable prior year reserve development for the three months ended March 31, 2021 and 2020 reflected overall favorable trends in claim closing patterns. Net favorable development for the 2021 three-month period was primarily related to the 2017 accident year and prior. Net favorable development for the 2020 three-month period was related to the 2015 and 2016 accident years.
Underwriting, Policy Acquisition and Operating Expenses
Underwriting, policy acquisition and operating expenses includes the amortization of commissions, premium taxes and underwriting salaries, which are capitalized and deferred over the related workers’ compensation policy period, net of ceding commissions earned. The capitalization of underwriting salaries can vary as they are subject to the success rate of our contract acquisition efforts. These expenses also include a management fee charged by our Corporate segment, which represents intercompany charges pursuant to a management agreement, and the amortization of intangible assets, primarily related to the acquisition of Eastern by ProAssurance. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary.
Our Workers' Compensation Insurance segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended March 31
($ in thousands)20212020Change
DPAC amortization$6,741 $7,850 $(1,109)(14.1 %)
Management fees542 601 (59)(9.8 %)
Other underwriting and operating expenses8,521 10,032 (1,511)(15.1 %)
SPC ceding commission offset(3,518)(4,319)801 (18.5 %)
Total$12,286 $14,164 $(1,878)(13.3 %)
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The decrease in DPAC amortization for the three months ended March 31, 2021 as compared to the same period in 2020 primarily reflects the decrease in net premiums earned. The decrease in other underwriting and operating expenses for the three months ended March 31, 2021 as compared to the same period of 2020 primarily reflected a decrease in compensation-related costs and, to a lesser extent, a decrease in travel-related costs related to the COVID-19 pandemic. The decrease in compensation-related costs during the 2021 three-month period was driven by a reduction in headcount as a result of the 2020 organizational restructuring and, to a lesser extent, a decrease in employer contributions to the ProAssurance Savings Plan (see Note 17 of the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K).
As previously discussed, alternative market premiums written through our Workers' Compensation Insurance segment's alternative market business unit are 100% ceded, less a ceding commission, to either the SPCs in our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer. The ceding commission consists of an amount for fronting fees, cell rental fees, commissions, premium taxes and risk management fees. The fronting fees, commissions, premium taxes and risk management fees are recorded as an offset to underwriting, policy acquisition and operating expenses. Cell rental fees are recorded as a component of other income and claims administration fees are recorded as ceded ULAE. The decrease in SPC ceding commissions earned for the three months ended March 31, 2021 as compared to the same respective period of 2020, primarily reflects the decrease in alternative market ceded earned premium.
Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Three Months Ended March 31
20212020Change
Underwriting expense ratio, as reported30.7 %31.8 %(1.1  pts)
Less estimated ratio increase (decrease) attributable to:
Impact of ceding commissions received from SPCs2.9 %2.3 %0.6  pts
Retrospective premium adjustment— %0.1 %(0.1  pts)
Impact of audit premium1.0 %(0.2 %)1.2  pts
Change in return premium estimate under external reinsurance(0.2 %)— %(0.2  pts)
Estimated revenue share(0.4 %)(0.1 %)(0.3  pts)
Underwriting expense ratio, less listed effects27.4 %29.7 %(2.3  pts)
Excluding the items noted in the table above, the expense ratio decreased for the three months ended March 31, 2021, primarily reflecting the decrease in compensation-related costs and, to a lesser extent, travel-related costs, partially offset by the decrease in net premiums earned.
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Segment Results - Segregated Portfolio Cell Reinsurance
The Segregated Portfolio Cell Reinsurance segment includes the results (underwriting profit or loss, plus investment results, net of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, our Cayman Islands SPC operations, as discussed in Note 14 of the Notes to Condensed Consolidated Financial Statements. SPCs are segregated pools of assets and liabilities that provide an insurance facility for a defined set of risks. Assets of each SPC are solely for the benefit of that individual cell and each SPC is solely responsible for the liabilities of that individual cell. Assets of one SPC are statutorily protected from the creditors of the others. Each SPC is owned, fully or in part, by an agency, group or association and the results of the SPCs are attributable to the participants of that cell. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC results attributable to external cell participants are reported as an SPC dividend (expense) income in our Segregated Portfolio Cell Reinsurance segment. In addition, our Segregated Portfolio Cell Reinsurance segment includes the investment results of the SPCs as the investments are solely for the benefit of the cell participants and investment results attributable to external cell participants are reflected in the SPC dividend (expense) income. As of March 31, 2021, there were 27 (3 inactive) SPCs. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from our Workers' Compensation Insurance and Specialty P&C segments. As of March 31, 2021, there were two SPCs that assumed both workers' compensation insurance and healthcare professional liability insurance and one SPC that assumed only healthcare professional liability insurance.
Segment results reflects our share of the underwriting and investment results of the SPCs in which we participate, and included the following:
Three Months Ended March 31
($ in thousands)20212020Change
Net premiums written$22,188 $23,990 $(1,802)(7.5 %)
Net premiums earned$15,884 $16,980 $(1,096)(6.5 %)
Net investment income221 254 (33)(13.0 %)
Net realized gains (losses)987 (3,207)4,194 130.8 %
Other income1 136 (135)(99.3 %)
Net losses and loss adjustment expenses(9,425)(9,352)(73)0.8 %
Underwriting, policy acquisition and operating expenses(5,025)(5,079)54 (1.1 %)
SPC U.S. federal income tax expense (1)
(356)(222)(134)60.4 %
SPC net results2,287 (490)2,777 566.7 %
SPC dividend (expense) income (2)
(1,742)508 (2,250)442.9 %
Segment results (3)
$545 $18 $527 2,927.8 %
Net loss ratio59.3 %55.1 %4.2 pts
Underwriting expense ratio31.6 %29.9 %1.7 pts
(1) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
(2) Represents the net (profit) loss attributable to external cell participants.
(3) Represents our share of the net profit (loss) of the SPCs in which we participate.


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Premiums Written
Premiums in our Segregated Portfolio Cell Reinsurance segment are assumed from either our Workers' Compensation Insurance or Specialty P&C segments. Premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of the existing book of business, (3) premium rates charged on the renewal book of business and, for workers' compensation business, (4) changes in payroll exposure and (5) audit premium.
Gross, ceded and net premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums written$25,151 $27,140 $(1,989)(7.3 %)
Less: Ceded premiums written2,963 3,150 (187)(5.9 %)
Net premiums written$22,188 $23,990 $(1,802)(7.5 %)
Gross Premiums Written
Gross premiums written reflected reinsurance premiums assumed by component as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Workers' compensation$20,682 $23,356 $(2,674)(11.4 %)
Healthcare professional liability4,469 3,784 685 18.1 %
Gross Premiums Written$25,151 $27,140 $(1,989)(7.3 %)
Gross premiums written for the three months ended March 31, 2021 and 2020 were primarily comprised of workers' compensation coverages assumed from our Workers' Compensation Insurance segment. The decrease in workers' compensation gross premiums written during the three months ended March 31, 2021 as compared to the same period in 2020 primarily reflected the competitive workers’ compensation market conditions and the resulting renewal rate decreases of 5%, partially offset by an improvement in the renewal retention rate. The renewal retention rate for the three months ended March 31, 2020 included the impact of a reduction in premium funding for a large workers' compensation alternative market program. We do not participate in this program; therefore, the reduction in premium funding had no effect on the segment results for the three months ended March 31, 2020. The increase in healthcare professional liability gross premiums written during the three months ended March 31, 2021 as compared to the same period in 2020 was driven by renewal pricing increases, primarily due to increases in exposure for one program. We retained 100% of the eight workers' compensation programs and one healthcare professional liability program up for renewal during the three months ended March 31, 2021.
New business, audit premium, retention and renewal price changes for the assumed workers' compensation premium is shown in the table below:
Three Months Ended March 31
($ in millions)20212020
New business$0.8 $1.1 
Audit premium (including EBUB)$0.2 $(0.3)
Retention rate (1)
92 %78 %
Change in renewal pricing (2)
(5 %)(6 %)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
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Ceded Premiums Written
Ceded premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Ceded premiums written$2,963 $3,150 $(187)(5.9 %)
For the workers' compensation business, each SPC has in place its own external reinsurance arrangements. The healthcare professional liability business is assumed net of reinsurance from our Specialty P&C segment; therefore, there are no ceded premiums related to the healthcare professional liability business reflected in the table above. The risk retention for each loss occurrence for the workers' compensation business ranges from $0.3 million to $0.4 million based on the program, with limits up to $119.7 million. In addition, each program has aggregate reinsurance coverage between $1.1 million and $2.1 million on a program year basis. Per the SPC external reinsurance agreements, premiums are ceded on a written premium basis. The decrease in ceded premiums written during the three months ended March 31, 2021 as compared to the same period of 2020, was driven by a decrease in workers' compensation gross premiums written, and was partially offset by an increase in reinsurance rates for programs with renewal dates on or after May 1, 2020. External reinsurance rates vary based on the alternative market program.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
Three Months Ended March 31
20212020Change
Ceded premiums ratio14.3%13.5%0.8 pts
The above table reflects ceded premiums as a percent of gross premiums written for the workers' compensation business only; healthcare professional liability business is assumed net of reinsurance, as discussed above. The ceded premiums ratio reflects the weighted average reinsurance rates of all SPC programs. The increase in the ceded premiums ratio for the three months ended March 31, 2021 primarily reflects an increase in reinsurance rates for programs renewing on or after May 1, 2020.
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that the SPCs cede to external reinsurers. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Policies ceded to the SPCs are twelve month term policies and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of workers' compensation insureds' payrolls. Payroll audits are conducted subsequent to the end of the policy period and any related adjustments are recorded as fully earned in the current period.
Gross, ceded and net premiums earned were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums earned$17,967 $19,190 $(1,223)(6.4 %)
Less: Ceded premiums earned2,083 2,210 (127)(5.7 %)
Net premiums earned$15,884 $16,980 $(1,096)(6.5 %)
The decrease in net premiums earned during the three months ended March 31, 2021 primarily reflected the pro rata effect of a reduction in net premiums written during the preceding twelve months.
Net Investment Income and Net Realized Investment Gains (Losses)
Net investment income for the three months ended March 31, 2021 and 2020 was primarily attributable to interest earned on available-for-sale fixed maturity investments, which primarily includes investment-grade corporate debt securities. We recognized $1.0 million of net realized investment gains during the three months ended March 31, 2021, which primarily reflected an increase in the fair value on our equity portfolio. We recognized $3.2 million of net realized investment losses during the three months ended March 31, 2020 driven by changes in the fair value of our equity portfolio attributable to the disruptions in global financial markets related to COVID-19.
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Losses and Loss Adjustment Expenses
The following table summarizes the calendar year net loss ratios by separating losses between the current accident year and all prior accident years. The current accident year net loss ratio reflected the aggregate loss ratio for all programs. Loss reserves are estimated for each program on a quarterly basis. Due to the size of some of the programs, quarterly loss results can create volatility in the current accident year net loss ratio from period to period.
Calendar year and current accident year net loss ratios for the three months ended March 31, 2021 and 2020 was as follows:
Three Months Ended March 31
20212020Change
Calendar year net loss ratio59.3 %55.1 %4.2  pts
Less impact of prior accident years on the net loss ratio(9.6 %)(10.6 %)1.0  pts
Current accident year net loss ratio68.9 %65.7 %3.2  pts
The increase in the current accident year net loss ratio for the 2021 three-month period of 3.2 percentage points as compared to the same period of 2020 primarily reflected the continuation of intense price competition and the resulting renewal rate decreases in the workers' compensation business. As a result of the COVID-19 pandemic, legislative and regulatory bodies in certain states have changed or are considering changes to compensability requirements and presumptions for certain types of workers related to COVID-19 claims. Such changes could have an adverse impact on the frequency and severity related to COVID-19 claims.
Calendar year incurred losses (excluding IBNR) ceded to our external reinsurers increased $3.1 million for the 2021 three-month period as compared to the same period of 2020, primarily reflecting the impact of three large claims reported in the first quarter of 2021 that occurred in late 2020. Current accident year ceded incurred losses (excluding IBNR) decreased $0.4 million for the 2021 three-month period, as compared to the same period of 2020.
We recognized net favorable prior year reserve development of $1.4 million and $1.8 million for the three months ended March 31, 2021 and 2020, respectively. The net favorable prior year reserve development for the three months ended March 31, 2021 related entirely to workers’ compensation business, which primarily reflected overall favorable trends in claim closing patterns primarily in the 2018 and 2019 accident years. The net favorable prior year development for the three months ended March 31, 2020 included $0.8 million and $1.0 million related to the workers' compensation and healthcare professional liability business, respectively. The workers' compensation favorable development was primarily related to the 2018 accident year, while the healthcare professional liability favorable development was primarily related to the 2016 through 2018 accident years.
Underwriting, Policy Acquisition and Operating Expenses
Our Segregated Portfolio Cell Reinsurance segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended March 31
($ in thousands)20212020Change
DPAC amortization$4,636 $5,135 $(499)(9.7 %)
Other underwriting and operating expenses389 (56)445 794.6 %
Total$5,025 $5,079 $(54)(1.1 %)
DPAC amortization primarily represents ceding commissions, which vary by program and are paid to our Workers' Compensation Insurance and Specialty P&C segments for premiums assumed. Ceding commissions include an amount for fronting fees, commissions, premium taxes and risk management fees, which are reported as an offset to underwriting, policy acquisition and operating expenses within our Workers' Compensation Insurance and Specialty P&C segments. In addition, ceding commissions paid to our Workers' Compensation Insurance segment include cell rental fees which are recorded as other income within our Workers' Compensation Insurance segment.
Other underwriting and operating expenses primarily include bank fees, professional fees and bad debt expense. The increase in other underwriting and operating expenses for the three months ended March 31, 2021 as compared to the same period in 2020 primarily reflected the effect of recoveries of premiums receivables during the first quarter of 2020 that were previously written off, which resulted in a reduction to our allowance for expected credit losses and, to a lesser extent, an increase in policyholder dividend expense related to one SPC program.
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Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Three Months Ended March 31
20212020Change
Underwriting expense ratio, as reported31.6%29.9%1.7 pts
Less: impact of audit premium on expense ratio(0.3%)0.6%(0.9 pts)
Underwriting expense ratio, excluding the effect of audit premium31.9%29.3%2.6 pts
Excluding the effect of audit premium, the increase in the underwriting expense ratio during the 2021 three-month period primarily reflected the effect of the aforementioned premiums receivable recoveries during the first quarter of 2020 and the increase in policyholder dividend expense, partially offset by a decrease in the weighted average ceding commission percentage of all SPC programs.
SPC U.S. Federal Income Tax Expense
The SPCs at Inova Re have made a 953(d) election under the U.S. Internal Revenue Code and are subject to U.S. federal income tax. U.S. federal income taxes incurred totaled $0.4 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
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Segment Results - Lloyd's Syndicates
Our Lloyd's Syndicates segment includes the results from our participation in certain Syndicates at Lloyd's of London. In addition to our participation in Syndicate results, we have investments in and other obligations to our Lloyd's Syndicates consisting of a Syndicate Credit Agreement and FAL requirements. For the 2021 underwriting year, our FAL was comprised of investment securities and cash and cash equivalents deposited with Lloyd's which at March 31, 2021 had a fair value of approximately $106.8 million, as discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements.
We normally report results from our involvement in Lloyd's Syndicates on a quarter lag, except when information is available that is material to the current period. Furthermore, the investment results associated with our FAL investments and certain U.S. paid administrative expenses are reported concurrently as that information is available on an earlier time frame.
Lloyd's Syndicate 1729. We provide capital to Syndicate 1729, which covers a range of property and casualty insurance and reinsurance lines in both the U.S. and international markets. The remaining capital for Syndicate 1729 is provided by unrelated third parties, including private names and other corporate members. To support and grow our core insurance operations, we decreased our participation in the results of Syndicate 1729 for the 2021 underwriting year to 5% from 29% which, due to the quarter lag, will not be reflected in our results until the second quarter of 2021. Syndicate 1729's maximum underwriting capacity for the 2021 underwriting year is £185 million (approximately $255 million based on March 31, 2021 exchange rates), of which £9 million (approximately $13 million based on March 31, 2021 exchange rates) is our allocated underwriting capacity.
Lloyd's Syndicate 6131. We provide capital to an SPA, Syndicate 6131, which focuses on contingency and specialty property business, primarily for risks in both U.S. and international markets. As an SPA, Syndicate 6131 underwrites on a quota share basis with Syndicate 1729. Effective July 1, 2020, Syndicate 6131 entered into a six-month quota share reinsurance agreement with an unaffiliated insurer. Under this agreement, Syndicate 6131 ceded essentially half of the premium assumed from Syndicate 1729 to the unaffiliated insurer; the agreement was non-renewed on January 1, 2021 and we decreased our participation in the results of Syndicate 6131 to 50% from 100% for the 2021 underwriting year. Due to the quarter lag, this reduced participation will not be reflected in our results until the second quarter of 2021. Syndicate 6131's maximum underwriting capacity for the 2021 underwriting year is £20 million (approximately $28 million based on March 31, 2021 exchange rates), of which £10 million (approximately $14 million based on March 31, 2021 exchange rates) is our allocated underwriting capacity.
In addition to the results of our participation in Lloyd's Syndicates, as discussed above, our Lloyd's Syndicates segment also includes 100% of the results of our wholly owned subsidiaries that support our operations at Lloyd's. For the three months ended March 31, 2021 and 2020, the results of our Lloyd's Syndicates segment were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Net premiums written$11,885 $26,660 $(14,775)(55.4 %)
Net premiums earned$15,850 $22,001 $(6,151)(28.0 %)
Net investment income729 1,159 (430)(37.1 %)
Net realized gains (losses)(115)81 (196)(242.0 %)
Other income (loss)221 (232)453 195.3 %
Net losses and loss adjustment expenses(12,967)(14,780)1,813 (12.3 %)
Underwriting, policy acquisition and operating expenses(6,591)(9,142)2,551 (27.9 %)
Income tax benefit (expense)— 29 (29)nm
Segment results$(2,873)$(884)$(1,989)(225.0 %)
Net loss ratio81.8 %67.2 %14.6  pts
Underwriting expense ratio41.6 %41.6 %—  pts
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Premiums Written
Changes in our premium volume within our Lloyd's Syndicates segment are driven by five primary factors: (1) changes in our participation in the Syndicates, (2) the amount of new business and the channels in which the business is written, (3) our retention of existing business, (4) the premium charged for business that is renewed, which is affected by rates charged and by the amount and type of coverage an insured chooses to purchase, and (5) the timing of premium written through multi-period policies.
Gross, ceded and net premiums written were as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Gross premiums written$14,102 $27,861 $(13,759)(49.4 %)
Less: Ceded premiums written2,217 1,201 1,016 84.6 %
Net premiums written$11,885 $26,660 $(14,775)(55.4 %)
Gross Premiums Written
Gross premiums written during the three months ended March 31, 2021 consisted of property insurance coverages (35% of total gross premiums written), specialty property coverages (30%), casualty coverages (25%), contingency coverages (8%) and property reinsurance coverages (2%). The decrease in gross premiums written during the 2021 three-month period as compared to the same period of 2020 was primarily driven by our decreased participation in the results of Syndicate 1729, partially offset by new business written, primarily on specialty property coverages. In addition, the decrease in gross premiums written for the 2021 three-month period also reflected the effect of a certain type of coverage reaching capacity limits as set forth by Syndicate 1729's business plan and, to a lesser extent, the effect of estimated reinstatement premiums of $0.6 million as compared to $1.8 million in the prior year period. The reinstatement premiums represent amounts payable to Syndicate 1729 under certain excess of loss reinsurance treaties, primarily associated with property and catastrophe related losses, which are fully earned in the period the changes in estimates occur.
Ceded Premiums Written
Syndicate 1729 utilizes reinsurance to provide the capacity to write larger limits of liability on individual risks, to provide protection against catastrophic loss and to provide protection against losses in excess of policy limits. As previously discussed, for the second half of 2020 Syndicate 6131 utilized external quota share reinsurance to manage the net loss exposure on the specialty property and contingency coverages it assumed from Syndicate 1729 by ceding essentially half of the premium assumed to an unaffiliated insurer; this agreement was non-renewed on January 1, 2021. Due to the quarter lag, the effect of this reinsurance arrangement was not reflected in our results until the fourth quarter of 2020. Ceded premiums written decreasedincreased for the three and nine months ended September 30, 2020March 31, 2021 as compared to the same periodsperiod of 20192020 primarily driven by the impact of premiums ceded under Syndicate 6131's six-month quota share agreement, partially offset by our decreased participation in the results of Syndicate 1729. In addition, the decrease in ceded premiums written during the 2020 nine-month period as compared to the same period
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Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that the Syndicates cede to reinsurers for their assumption of a portion of losses. Premiums written through open-market channels are generally earned pro rata over the entire policy period, which is predominately twelve months, whereas premiums written through delegated underwriting authority arrangements are earned over twenty-four months. Therefore, net premiums earned is affected by shifts in the mix of policies written between the open-market and delegated underwriting authority arrangements. Additionally, net premiums earned consists of a mix of policies earned from different open underwriting years. As previously discussed, we participate to a varying degree in each open underwriting year which may cause fluctuations in premiums earned. Furthermore, fluctuations in premiums earned tend to lag those of premiums written. Premiums for certain policies and assumed reinsurance contracts are reported subsequent to the coverage period and/or may be subject to adjustment based on loss experience. These premium adjustments are earned when reported, which can result in further fluctuation in earned premium.
Gross, ceded and net premiums earned were as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
($ in thousands)2020 2019 Change 2020 2019 Change($ in thousands)20212020Change
Gross premiums earned$22,777
 $26,399
 $(3,622)(13.7%) $77,309
 $72,225
 $5,084
7.0%Gross premiums earned$20,385 $28,196 $(7,811)(27.7 %)
Less: Ceded premiums earned4,635
 5,104
 (469)(9.2%) 16,123
 15,010
 1,113
7.4%Less: Ceded premiums earned4,535 6,195 (1,660)(26.8 %)
Net premiums earned$18,142
 $21,295
 $(3,153)(14.8%) $61,186
 $57,215
 $3,971
6.9%Net premiums earned$15,850 $22,001 $(6,151)(28.0 %)
The decrease in gross premiums earned during the three months ended September 30, 2020March 31, 2021 as compared to the same period of 20192020 reflected the effect of reinstatement premiums earned during each of the first quarters of 2021 and 2020 (see previous discussion under the heading "Gross Premiums Written"). After removing the effect of the reinstatement premiums from both periods, gross premiums earned decreased $6.6 million in the 2021 three-month period as compared to the same period of 2020. The decrease in gross premiums earned during the three months ended March 31, 2021 was driven by our decreased participation in Syndicate 1729, somewhat offset by the pro rata effect of higher premiums written at the Syndicates during the preceding twelve months, primarily property insurance and casualty coverages. Gross premiums earned increased during the nine months ended September 30, 2020 as compared to the same period of 2019 driven by the pro rata effect of higher premiums written during the preceding twelve months, primarily property insurance coverages. The increase in gross premiums earned during the nine months ended September 30, 2020 was partially offset by our decreased participation in Syndicate 1729, which was not reflected in our results until the second quarter of 2020.
The decrease in ceded premiums earned during the three months ended September 30, 20202021 three-month period as compared to the same period of 20192020 was driven by our decreased participation in Syndicate 1729. The increase in ceded premiums earned during the nine months ended September 30, 2020 as compared to the same period of 2019 was driven1729, partially offset by the pro rata effect of an increase in premiums ceded under reinsurance arrangements during the preceding twelve months due to the increase in gross premiums earned, as previously discussed.months.

Net Losses and Loss Adjustment Expenses
Losses for the period were primarily recorded using the loss assumptions by risk category incorporated into the business plans submitted to Lloyd's for Syndicate 1729 and Syndicate 6131 with consideration given to loss experience incurred to date. The assumptions used in each business plan were consistent with loss results reflected in Lloyd's historical data for similar risks. The loss ratios may fluctuate due to the mix of earned premium and the timing of earned premium adjustments (see discussion in this section under the heading "Net Premiums Earned"). Premium and exposure for some of Syndicate 1729's insurance policies and reinsurance contracts are initially estimated and subsequently adjusted over an extended period of time as underlying premium reports are received from cedants and insureds. When reports are received, the premium, exposure and corresponding loss estimates are revised accordingly. Changes in loss estimates due to premium or exposure fluctuations are incurred in the accident year in which the premium is earned.
The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Net loss ratios for the period were as follows:
Net Loss RatiosNet Loss Ratios
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2020 2019 Change 2020 2019 Change20212020Change
Calendar year net loss ratio51.4% 55.9% (4.5 pts) 64.4% 60.5% 3.9 ptsCalendar year net loss ratio81.8%67.2%14.6 pts
Less impact of prior accident years on the net loss ratio(14.5%) (2.4%) (12.1 pts) (2.1%) —% (2.1 pts)
Less: impact of prior accident years on the net loss ratioLess: impact of prior accident years on the net loss ratio9.7%(1.5%)11.2 pts
Current accident year net loss ratio65.9% 58.3% 7.6 pts 66.5% 60.5% 6.0 ptsCurrent accident year net loss ratio72.1%68.7%3.4 pts
For the three and nine months ended September 30, 2020,March 31, 2021, the current accident year net loss ratio increased 7.6 and 6.03.4 percentage points respectively, as compared to the same periodsperiod of 2019.2020. The increase in the current accident year net loss ratio for the 2020 three-month period was driven by lower reinsurance recoveries as a proportion of gross losses as compared to the prior year period associated with property and catastrophe related losses and, to a lesser extent, the effect of a decrease in net premiums earned, as previously discussed. For the 2020 nine-month period, the increase in the ratio was driven by certain property and catastrophe related losses and, to a lesser extent, contingency related losses incurred during 2020.losses.
We recognized $2.6$1.5 million and $1.3of unfavorable prior year development for the three months ended March 31, 2021 as compared to $0.3 million of favorable prior year development for the three and nine months ended September 30, 2020, respectively, as compared to $0.5 millionsame period of favorable prior year2020. The unfavorable development and a nominal amount
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recognized during the three and nine months ended September 30, 2020March 31, 2021 was driven by lowerhigher than expected losses and development on certain large claims, primarily property and catastrophe related losses, which resulted in favorableunfavorable development with respect to a previous underwriting year.year of account.
We have exposures to potential COVID-19 claims through our participation in SyndicateSyndicates 1729 and 6131. During the three and nine months ended September 30, 2020,March 31, 2021, we recognized losses related to COVID-19 of approximately $1.4$0.8 million, and $2.9 million, respectively, net of reinsurance, primarily in Syndicate 6131's contingency and Syndicate 1729's casualty books of business. We are closely monitoringPlease see the impact of potential legislation or court decisions that could retroactively require Syndicate 1729 and 6131 to extend certain insurance to cover COVID-19 claims, even if the original contract excluded the cover of communicable diseases as is typical"Insurance Regulatory Matters" section in certain policies the Syndicates write; however, to date, legislative attempts have been unsuccessful. If successful, these actions could resultPart 1, Item 1 in an increase in claim frequency and severity due to an unintended increase in exposureour December 31, 2020 report on Form 10-K for Syndicate 1729 and 6131 which could have a material effect on our financial condition, results of operations and cash flows given our participation in the Syndicates. See previous discussion in the Regulatory Environment section under the heading "COVID-19".additional information.
Underwriting, Policy Acquisition and Operating Expenses
Underwriting, policy acquisition and operating expenses decreased by $2.5 million and $2.1$2.6 million for the 2020 three- and nine-month periods, respectively,2021 three-month period as compared to the same periodsperiod of 20192020 and reflected our decreased participation in Syndicate 1729. The decrease for the 2020 nine-month period also reflected the effect of higher operational expenses incurred associated with establishing Syndicate 6131 during 2019, partially offset by an increase in DPAC amortization due to the increase in net premiums earned, as previously discussed.
For the three and nine months ended September 30, 2020,March 31, 2021, the underwriting expense ratio decreased by 6.0 and 6.3 percentage points, respectively, as compared towas unchanged from the same periodsperiod of 20192020 driven by lower operating expenses due to our reduced participation in Syndicate 1729. Operating expenses incurred during the 2020 three- and nine-month periods primarily were related to the 2020 underwriting year for which our participation is 29%, whereas the1729, offset by a decrease in net premiums earned, during the same periods also includes premium from other open underwriting years to which we participate at a higher degree.

as previously discussed.
Investments
The change in net investment income for the 2020 and 2019 three- and nine-month periods was primarily attributable to interest earned on our FAL investments, which primarily includes investment-grade corporate debt securities. During the second quarter of 2020, certain corporate debt securities included in our FAL investments were liquidated. During the third quarter of 2020, approximately $32.3 million of cash and cash equivalents was returned to ProAssurance, as previously discussed, which is anticipated to impact the segment's net investment income in future periods. Syndicate 1729's fixed maturities portfolio includes certain debt securities classified as trading securities. Investment results associated with these fixed maturity trading securities are reported on the same quarter lag. The decrease in net investment income for the 2021 three-month period as compared to the same period of 2020 was primarily attributable to lower average investment balances and lower yields, primarily from investment-grade corporate debt securities. The lower average investment balances for the 2021 three-month period were driven by the return of approximately $32.3 million of cash and cash equivalents from our FAL balances given the reduction in our participation in the results of Syndicate 1729 for the 2020 underwriting year (see Note 6 of the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K). In addition, we expect to receive a return of approximately $24 million of FAL given our additional reduction in our participation in the results of Syndicate 1729 and Syndicate 6131 for the 2021 underwriting year, as previously discussed, which is anticipated to further impact our segment's net investment income in future periods.
Taxes
The results of this segment are subject to U.K. income tax law.

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Segment Results - Corporate
Our Corporate segment includes our investment operations, other than those reported in our Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments, interest expense and U.S. income taxes as discussed in Note 1314 of the Notes to Condensed Consolidated Financial Statements. Our Corporate segment also includes non-premium revenues generated outside of our insurance entities and corporate expenses. Segment results for our Corporate segment were net earnings of $17.1 million and $48.9$19.6 million for the three and nine months ended September 30, 2020, respectively,March 31, 2021 as compared to $22.4a $4.0 million and $79.7 millionnet loss for the same respective periodsperiod of 20192020 and included the following:
Three Months Ended March 31
($ in thousands)20212020Change
Net investment income$14,067 $19,417 $(5,350)(27.6 %)
Equity in earnings (loss) of unconsolidated subsidiaries$6,788 $(1,562)$8,350 (534.6 %)
Net realized gains (losses)$7,977 $(25,547)$33,524 131.2 %
Other income$1,894 $633 $1,261 199.2 %
Operating expense$7,175 $4,827 $2,348 48.6 %
Interest expense$3,212 $4,129 $(917)(22.2 %)
Income tax expense (benefit)$736 $(12,047)$12,783 (106.1 %)
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)20202019Change 20202019Change
Net investment income$15,700
$22,159
$(6,459)(29.1%) $51,809
$65,495
$(13,686)(20.9%)
Equity in earnings (loss) of unconsolidated subsidiaries$4,853
$(1,277)$6,130
480.0% $(22,065)$(7,240)$(14,825)(204.8%)
Net realized gains (losses)$6,854
$947
$5,907
623.8% $(1,844)$44,390
$(46,234)(104.2%)
Other income$775
$963
$(188)(19.5%) $1,813
$2,701
$(888)(32.9%)
Operating expense$5,044
$2,682
$2,362
88.1% $17,632
$12,676
$4,956
39.1%
Interest expense$3,881
$4,274
$(393)(9.2%) $11,725
$12,850
$(1,125)(8.8%)
Income tax expense (benefit)$2,141
$(6,528)$8,669
132.8% $(48,592)$157
$(48,749)nm
Net Investment Income, Equity in Earnings (Loss) of Unconsolidated Subsidiaries, Net Realized Investment Gains (Losses)
Net Investment Income
Net investment income is primarily derived from the income earned by our fixed maturity securities and also includes dividend income from equity securities, income from our short-term and cash equivalent investments, earnings from other investments and increases in the cash surrender value of BOLI contracts, net of investment fees and expenses.
Net investment income by investment category was as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
($ in thousands)2020 2019 Change 2020 2019 Change($ in thousands)20212020Change
Fixed maturities$15,731
 $17,020
 $(1,289) (7.6%) $49,037
 $49,852
 $(815) (1.6%)Fixed maturities$14,725 $16,931 $(2,206)(13.0 %)
Equities706
 3,943
 (3,237) (82.1%) 3,598
 13,756
 (10,158) (73.8%)Equities694 1,909 (1,215)(63.6 %)
Short-term investments, including Other297
 1,758
 (1,461) (83.1%) 1,995
 4,874
 (2,879) (59.1%)Short-term investments, including Other198 1,342 (1,144)(85.2 %)
BOLI655
 645
 10
 1.6% 1,568
 1,557
 11
 0.7%BOLI444 456 (12)(2.6 %)
Investment fees and expenses(1,689) (1,207) (482) 39.9% (4,389) (4,544) 155
 (3.4%)Investment fees and expenses(1,994)(1,221)(773)63.3 %
Net investment income$15,700
 $22,159
 $(6,459) (29.1%) $51,809
 $65,495
 $(13,686) (20.9%)Net investment income$14,067 $19,417 $(5,350)(27.6 %)
Fixed Maturities
Income from our fixed maturities decreased during the 2020 three- and nine-month periods2021 three-month period as compared to the same periodsperiod of 20192020 primarily due to lower yields from our corporate debt securities, partially offset by higher average investment balances. Average investment balances were approximately 3% and 5%7% higher for the 2020 three- and nine-month periods, respectively,2021 three-month period, as compared to the same respective periodsperiod of 2019.2020. The decline in income from our fixed maturities during the 2021 three-month period also reflected the impact of capital planning in anticipation of closing our acquisition of NORCAL.
Average yields for our fixed maturity portfolio were as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2020 2019 2020 2019 20212020
Average income yield3.0% 3.4% 3.1% 3.4%Average income yield2.6%3.4%
Average tax equivalent income yield3.0% 3.4% 3.2% 3.4%Average tax equivalent income yield2.7%3.4%
Equities
Income from our equity portfolio decreased during the 2020 three- and nine-month periods2021 three-month period as compared to the same respective periodsperiod of 20192020 which reflected a decrease in our allocation to this asset category.

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Short-term Investments and Other Investments
Short-term investments, which have a maturity at purchase of one year or less are carried at fair value, which approximates their cost basis, and are primarily composed of investments in U.S. treasury obligations, commercial paper and money market funds. Income from our short-term and other investments decreased during the 2020 three- and nine-month periods2021 three-month period as compared to the same respective periodsperiod of 20192020, primarily attributable to lower yields given the actions taken by the Federal Reserve to aggressively reduce interest rates in response to COVID-19.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings (loss) of unconsolidated subsidiaries was comprised as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
($ in thousands)2020 2019 Change 2020 2019 Change($ in thousands)20212020Change
All other investments, primarily investment fund LPs/LLCs$9,387
 $4,495
 $4,892
 108.8% $(6,093) $8,621
 $(14,714) (170.7%)All other investments, primarily investment fund LPs/LLCs$9,974 $3,103 $6,871 221.4 %
Tax credit partnerships(4,534) (5,772) 1,238
 (21.4%) (15,972) (15,861) (111) 0.7%Tax credit partnerships(3,186)(4,665)1,479 (31.7 %)
Equity in earnings (loss) of unconsolidated subsidiaries$4,853
 $(1,277) $6,130
 480.0% $(22,065) $(7,240) $(14,825) 204.8%Equity in earnings (loss) of unconsolidated subsidiaries$6,788 $(1,562)$8,350 534.6 %
We hold interests in certain LPs/LLCs that generate earnings from trading portfolios, secured debt, debt securities, multi-strategy funds and private equity investments. The performance of the LPs/LLCs is affected by the volatility of equity and credit markets. For our investments in LPs/LLCs, we record our allocable portion of the partnership operating income or loss as the results of the LPs/LLCs become available, typically following the end of a reporting period. The changeincrease in our investment results from our portfolio of investments in LPs/LLCs for the 2020 three- and nine-month periods2021 three-month period as compared to the same periodsperiod of 20192020 was driven by the volatility in the global financial markets relateddue to COVID-19.higher earnings from a few LPs/LLCs.
Our tax credit partnership investments are designed to generate returns in the form of tax credits and tax-deductible project operating losses and are comprised of qualified affordable housing project tax credit partnerships and a historic tax credit partnership. We account for our tax credit partnership investments under the equity method and record our allocable portion of the operating losses of the underlying properties based on estimates provided by the partnerships. For our qualified affordable housing project tax credit partnerships, we adjust our estimates of our allocable portion of operating losses periodically as actual operating results of the underlying properties become available. OurThe primary benefit of credits and losses from our historic tax credit partnership is short-termare earned in naturea short period, with potential for additional cash flows extending over several years, and the remaining operating losses up to our total current funded commitment, were recognized during the second quarter ofin 2020. The results from our tax credit partnership investments for the three and nine months ended September 30, 2020March 31, 2021 reflected lower partnership operating losses during the 2020 three-month period and higher partnership operating losses during the 2020 nine-month period as compared to the same periodsperiod of 2019. In addition, based on results received, we increased our estimate of operating losses by $0.8 million and $4.2 million during the three and nine months ended September 30, 2020, respectively, as compared to $1.5 million and $3.0 million during the same periods of 2019.2020.
The tax benefits received from our tax credit partnerships, which are not reflected in our investment results above, reduced our tax expense in 20202021 and 20192020 as follows:
Three Months Ended March 31
(In millions)20212020
Tax credits recognized during the period$3.4 $4.5 
Tax benefit of tax credit partnership operating losses$0.7 $1.0 
 Three Months Ended September 30 Nine Months Ended September 30
(In millions)2020 2019 2020 2019
Tax credits recognized during the period$4.5
 $4.6
 $13.4
 $13.9
Tax benefit of tax credit partnership operating losses$1.0
 $1.2
 $3.4
 $3.3
Due to our consolidated loss before income taxes recognized during the three and nine months ended September 30, 2020, theThe tax credits generated in 2020 from our tax credit partnership investments of $4.5$3.4 million and $13.4 million, respectively,for the three months ended March 31, 2021 were deferred and are expected to be utilized in future periods.
Tax credits provided by the underlying projects of our historic tax credit partnership are typically available in the tax year in which the project is put into active service, whereas the tax credits provided by qualified affordable housing project tax credit partnerships are provided over approximately a ten year period.

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Non-GAAP Financial Measure – Tax Equivalent Investment Result
We believe that to fully understand our investment returns it is important to consider the current tax benefits associated with certain investments as the tax benefit received represents a portion of the return provided by our tax-exempt bonds, BOLI, common and preferred stocks, and tax credit partnership investments (collectively, our tax-preferred investments). We impute a pro forma tax-equivalent result by estimating the amount of fully-taxable income needed to achieve the same after-tax result as is currently provided by our tax-preferred investments. We believe this better reflects the economics behind our decision to invest in certain asset classes that are either taxed at lower rates and/or result in reductions to our current federal income tax expense. Our pro forma tax-equivalent investment result is shown in the table that follows as well as a reconciliation of our GAAP net investment result to our tax equivalent result.
Three Months Ended March 31
(In thousands)20212020
GAAP net investment result:
Net investment income$14,067 $19,417 
Equity in earnings (loss) of unconsolidated subsidiaries6,788 (1,562)
GAAP net investment result$20,855 $17,855 
Pro forma tax-equivalent investment result$22,883 $23,871 
Reconciliation of pro forma and GAAP tax-equivalent investment result:
GAAP net investment result$20,855 $17,855 
Taxable equivalent adjustments, calculated using the 21% federal statutory tax rate
State and municipal bonds115 161 
BOLI118 121 
Dividends received3 73 
Tax credit partnerships1,792 5,661 
Pro forma tax-equivalent investment result$22,883 $23,871 


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 Three Months Ended September 30 Nine Months Ended September 30
(In thousands)2020 2019 2020 2019
GAAP net investment result:       
Net investment income$15,700
 $22,159
 $51,809
 $65,495
Equity in earnings (loss) of unconsolidated subsidiaries4,853
 (1,277) (22,065) (7,240)
GAAP net investment result$20,553
 $20,882
 $29,744
 $58,255
        
Pro forma tax-equivalent investment result$20,872
 $27,209
 $30,705
 $77,306
        
Reconciliation of pro forma and GAAP tax-equivalent investment result:       
GAAP net investment result$20,553
 $20,882
 $29,744
 $58,255
Taxable equivalent adjustments, calculated using the 21% federal statutory tax rate       
State and municipal bonds143
 191
 461
 659
BOLI174
 171
 417
 414
Dividends received2
 99
 83
 379
Tax credit partnerships*—
 5,866
 —
 17,599
Pro forma tax-equivalent investment result$20,872
 $27,209
 $30,705
 $77,306
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*Due to our consolidated pre-tax loss during the three and nine months ended September 30, 2020, the tax credits recognized from our tax credit partnership investments were deferred to be utilized in future periods; therefore, there is no tax-equivalent adjustment required as tax credits had no impact on our current tax expense during the three and nine months ended September 30, 2020.


Net Realized Investment Gains (Losses)
The following table provides detailed information regarding our net realized investment gains (losses).
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
(In thousands)2020 2019 2020 2019(In thousands)20212020
Total impairment losses       Total impairment losses
Corporate debt$—
 $(66) $(1,745) $(202)Corporate debt$— $(1,817)
Portion of impairment losses recognized in other comprehensive income before taxes:       Portion of impairment losses recognized in other comprehensive income before taxes:
Corporate debt—
 36
 237
 124
Corporate debt— 654 
Net impairment losses recognized in earnings—
 (30) (1,508) (78)Net impairment losses recognized in earnings— (1,163)
Gross realized gains, available-for-sale fixed maturities3,903
 651
 10,573
 1,877
Gross realized gains, available-for-sale fixed maturities4,163 2,279 
Gross realized (losses), available-for-sale fixed maturities(395) (125) (2,264) (453)Gross realized (losses), available-for-sale fixed maturities(187)(1,403)
Net realized gains (losses), equity investments(6) 1,935
 10,627
 12,902
Net realized gains (losses), equity investments4,156 15,197 
Net realized gains (losses), other investments530
 397
 2,442
 974
Net realized gains (losses), other investments3,196 48 
Change in unrealized holding gains (losses), equity investments1,400
 (1,427) (21,772) 26,504
Change in unrealized holding gains (losses), equity investments(3,788)(35,225)
Change in unrealized holding gains (losses), convertible securities, carried at fair value as a part of other investments1,170
 (519) (190) 2,597
Change in unrealized holding gains (losses), convertible securities, carried at fair value as a part of other investments(190)(5,273)
Other252
 65
 248
 67
Other627 (7)
Net realized investment gains (losses)$6,854
 $947
 $(1,844) $44,390
Net realized investment gains (losses)$7,977 $(25,547)
We did not recognize any credit-related impairment losses in earnings or non-credit impairment losses in OCI for the three months ended September 30, 2020.March 31, 2021. For the ninethree months ended September 30,March 31, 2020, we recognized $1.5 million of credit-related impairment losses in earnings of $1.2 million and a nominal amount of non-credit impairment losses in OCI.OCI of $0.7 million. The credit-related impairment losses recognized during the 2020 nine-month period related to corporate bonds in the energy and consumer sectors. Additionally, the 2020 nine-month period included credit-related impairment losses related to four corporate bonds in various sectors, which were sold during 2020.the energy, consumer, and entertainment sectors. The non-credit related impairment losses recognized during the 2020 nine-month period related to three corporate bonds in the energy and consumer sectors. For the three and nine months ended September 30, 2019, we recognized a nominal amount of both credit-related impairment losses and non-credit impairment losses in OCI, both of which related to a corporate bond.
We recognized $6.9$8.0 million of net realized investment gains during the 20202021 three-month period, driven primarily by realized gains in ouron the sale of certain available-for-sale fixed maturities due to the sale of corporate bonds and to a lesser extent, unrealized holding gains resulting from an increase in fair value on our equity portfolio and convertible securities.investments. We recognized $1.8$25.5 million of net realized investment losses during the 2020 nine-monththree-month period driven by unrealized holding losses resulting fromthe impact of decreases in the fair value on our equity portfolio of $35.2 million and convertible securities of $5.3 million due to the volatilitydisruptions in the global financial markets related to COVID-19 which were partially offset by realized gains on the sale of available-for-sale fixed maturities and equity investments. During the 2019 three- and nine-month periods we recognized $0.9 million and $44.4 million of net realized investment gains, respectively. Net realized investment gains for the 2019 three-month period were driven by realized gains from the sale of equity investments, partially offset by unrealized holding losses on our equity portfolio during the period. For the 2019 nine-month period, net realized investment gains were driven by unrealized holding gains on our equity portfolio and realized gains from the salefirst quarter of equity investments during the period. The primary driver2020.
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Table of the unrealized holding gains during the 2019 nine-month period was the improvement in the market since December 31, 2018, which caused our equity securities to increase in value. The most significant sectors that benefited were the financial and energy sectors.Contents

Operating Expenses
Corporate segment operating expenses were comprised as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Operating expenses$9,719 $9,093 $626 6.9 %
Management fee offset(2,544)(4,266)1,722 (40.4 %)
Total$7,175 $4,827 $2,348 48.6 %
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)2020 2019 Change 2020 2019 Change
Operating expenses$9,196
 $7,056
 $2,140
 30.3% $28,994
 $25,083
 $3,911
 15.6%
Management fee offset(4,152) (4,374) 222
 (5.1%) (11,362) (12,407) 1,045
 (8.4%)
Segment Total$5,044
 $2,682
 $2,362
 88.1% $17,632
 $12,676
 $4,956
 39.1%
Operating expenses increased during the 2020 three- and nine-month periods2021 three-month period as compared to the same periodsperiod of 20192020 primarily due to an increase in professional fees, and, topartially offset by a lesser extent, an increasedecrease in share-based compensation expenses.compensation-related costs. The increase in professional fees during the 2020 three- and nine-month periods2021 three-month period was driven by an increase in transaction-related costs associated with our planned acquisition of NORCAL (see Note 715 of the Notes to Condensed Consolidated Financial Statements) and, for. The decrease in compensation-related costs during the 2021 three-month period was driven by a reduction in headcount as a result of the 2020 nine-month period, corporate legal expenses. The increase in share-based compensation expenses for the 2020 three- and nine-month periods as compared to the same periods of 2019 was primarily attributable to the effect of a decrease in the value of projected awards during 2019 based upon the decline of one of the associated performance metrics. In addition, the increase in operating expenses during the 2020 three- and nine-month periods included one-time costs of $0.5 million primarily comprised of employee severance and early retirement benefits granted to certain employees during the third quarter of 2020. The increase in operating expenses during the 2020 three- and nine-month periods was partially offset by a decrease in various operational expenses, primarily other compensation-related costsorganizational restructuring and, to a lesser extent, travel-related costs as a resultdecrease in employer contributions to the ProAssurance Savings Plan (see Note 17 of the COVID-19 pandemic.Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K).
Operating subsidiaries within our Specialty P&C and Workers' Compensation Insurance segments are charged a management fee by the Corporate segment for services provided to these subsidiaries. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Under the arrangement, the expenses associated with such services are reported as expenses of the Corporate segment, and the management fees charged are reported as an offset to Corporate operating expenses. While the terms of the arrangement were consistent between 2019 and 2020, fluctuationsFluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period. Due to organizational structure enhancements in our Specialty P&C segment during 2020, the extent to which services are provided by the Corporate segment to the operating subsidiaries within that segment decreased effective January 1, 2021. Accordingly, we reduced the fee charged to the operating subsidiaries within the Specialty P&C segment during the 2021 three-month period. There were no changes to the extent to which services are provided by the Corporate segment to the operating subsidiaries within our Workers' Compensation Insurance segment in 2021.
Interest Expense
Consolidated interest expense for the three and nine months ended September 30, March 31, 2021 and 2020 and 2019 was comprised as follows:
Three Months Ended March 31
($ in thousands)20212020Change
Senior Notes due 2023$3,357 $3,357 $— — %
Revolving Credit Agreement (including fees and amortization)214 184 30 16.3 %
Mortgage Loans (including amortization)148 293 (145)(49.5 %)
(Gain)/loss on interest rate cap(507)295 (802)(271.9 %)
Interest expense$3,212 $4,129 $(917)(22.2 %)
 Three Months Ended September 30 Nine Months Ended September 30
($ in thousands)2020 2019 Change 2020 2019 Change
Senior Notes due 2023$3,357
 $3,357
 $—
 —% $10,071
 $10,071
 $—
 —%
Revolving Credit Agreement (including fees and amortization)312
 156
 156
 100.0% 579
 474
 105
 22.2%
Mortgage Loans (including amortization)*166
 351
 (185) (52.7%) 657
 1,096
 (439) (40.1%)
(Gain)/loss on interest rate cap46
 410
 (364) (88.8%) 418
 1,209
 (791) (65.4%)
Interest expense$3,881
 $4,274
 $(393) (9.2%) $11,725
 $12,850
 $(1,125) (8.8%)
* During each of the three and nine months ended September 30, 2019, we received a nominal cash payment associated with our interest rate cap which was recorded as a reduction to interest expense associated with our Mortgage Loans.
Consolidated interest expense decreased during the three and nine months ended September 30, 2020 March 31, 2021 as compared to the same respective periodsperiod of 20192020 driven by the change in the fair value of our interest rate cap and, to a lesser extent, lower interest expense on our Mortgage Loans. The interest rate cap is designated as an economic hedge of interest rate risk associated with our variable rate Mortgage Loans. Our Mortgage Loans accrue interest at three monththree-month LIBOR plus 1.325%, and the decrease in interest expense during the three and nine months ended September 30, 2020March 31, 2021 as compared to the same respective periodsperiod of 20192020 was primarily due to a decrease in the average three-month LIBOR. Interest expense on our Revolving Credit Agreement for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 primarily reflected unused commitment fees as there were no outstanding borrowings during those periods.either period. See further discussion of our outstanding debt in Note 910 of the Notes to Condensed Consolidated Financial Statements and further discussion of our interest rate cap agreement in Note 1211 of the Notes to Consolidated Financial Statements in ProAssurance'sour December 31, 20192020 report on Form 10-K.
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Taxes
Tax expense allocated to our Corporate segment includes U.S. tax only, which would include U.S. tax expense incurred from our corporate membership in Lloyd's of London. The U.K. tax expense incurred by the U.K. based subsidiaries of our Lloyd's Syndicates segment is allocated to that segment. The SPCs at Inova Re, one of our Cayman Islands reinsurance subsidiaries, have each made a 953(d) election under the U.S. Internal Revenue Code and are subject to U.S. federal income tax; therefore, tax expense allocated to our Corporate segment also includes tax expense incurred from any SPC at Inova Re in which we have a participation interest of 80% or greater as those SPCs are required to be included in our consolidated tax return. Consolidated tax expense (benefit) reflects the tax expense (benefit) of both segments, as shown in the table below:
Three Months Ended
September 30		 Nine Months Ended
September 30		Three Months Ended
March 31
(In thousands)2020 2019 2020 2019(In thousands)20212020
Corporate segment income tax expense (benefit)$2,141
 $(6,528) $(48,592) $157
Corporate segment income tax expense (benefit)$736 $(12,047)
Lloyd's Syndicates segment income tax expense (benefit)—
 (161) (29) (161)Lloyd's Syndicates segment income tax expense (benefit)— (29)
Consolidated income tax expense (benefit)$2,141
 $(6,689) $(48,621) $(4)Consolidated income tax expense (benefit)$736 $(12,076)
Listed below are the primary factors affecting our consolidated effective tax rate for the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020. The comparability of each factor's impact on our effective tax rate is affected by the consolidated pre-tax lossincome recognized during the three and nine months ended September 30, 2020March 31, 2021 as compared to the consolidated pre-tax incomeloss recognized during the same periodsperiod of 2019.2020. Factors that have the same directional impact on income tax expense in each period have an opposite impact on our effective tax rate due to the effective tax rate being calculated based upon a pre-tax income during the three months ended March 31, 2021 versus the pre-tax loss during the three and nine months ended September 30, 2020 versus pre-tax income during the same periodsperiod of 2019.2020. These factors include the following:
Three Months Ended September 30Three Months Ended March 31
2020 201920212020
($ in thousands)Income tax (benefit) expenseRate Impact Income tax (benefit) expenseRate Impact($ in thousands)Income tax (benefit) expenseRate ImpactIncome tax (benefit) expenseRate Impact
Computed "expected" tax expense (benefit) at statutory rate$(31,046)21.0% $2,206
21.0%Computed "expected" tax expense (benefit) at statutory rate$1,77921.0 %$(7,146)21.0 %
Tax-exempt income (1)
(252)0.1% (386)(3.7%)
Tax-exempt income (1)
(186)(2.2 %)(280)0.9 %
Tax credits(4,472)3.0% (4,634)(44.1%)Tax credits(3,374)(39.8 %)(4,471)13.1 %
Non-U.S. operating results(785)0.6% (246)(2.4%)Non-U.S. operating results6037.1 %186(0.5 %)
Tax deficiency (excess tax benefit) on share-based compensation6
—% (63)(0.6%)
Tax deficiency on share-based compensationTax deficiency on share-based compensation2973.5 %405(1.2 %)
Tax rate differential on loss carryback2,848
(1.9%) —
—%Tax rate differential on loss carryback—— %(1,424)4.2 %
Goodwill impairment (2)
31,413
(21.3%) —
—%
Estimated annual tax rate differential (3)
4,171
(2.9%) (2,009)(19.1%)
Change in uncertain tax positionsChange in uncertain tax positions570.7 %712(2.1 %)
Estimated annual tax rate differential (2)
Estimated annual tax rate differential (2)
2,08724.6 %—— %
Other258
—% (1,557)(14.8%)Other(527)(6.2 %)(58)0.1 %
Total income tax expense (benefit)$2,141
(1.4%) $(6,689)(63.7%)Total income tax expense (benefit)$736 8.7 %$(12,076)35.5 %
Nine Months Ended September 30
2020 2019
($ in thousands)Income tax (benefit) expenseRate Impact Income tax (benefit) expenseRate Impact
Computed "expected" tax expense (benefit) at statutory rate$(50,117)21.0% $12,679
21.0%
Tax-exempt income (1)
(759)0.3% (1,210)(2.0%)
Tax credits(13,415)5.6% (13,903)(23.1%)
Non-U.S. operating results(622)0.2% (180)(0.3%)
Tax deficiency (excess tax benefit) on share-based compensation434
(0.2%) (17)—%
Tax rate differential on loss carryback(6,482)2.7% —
—%
Goodwill impairment (2)
31,413
(13.2%) —
—%
Estimated annual tax rate differential (3)
(9,984)4.2% 4,292
7.0%
Other911
(0.2%) (1,665)(2.6%)
Total income tax expense (benefit)$(48,621)20.4% $(4)—%
(1) Includes tax-exempt interest, dividends received deduction and change in cash surrender value of BOLI.
(2)Represents the tax impact of the impairment of non-deductible goodwill in relation to the Specialty P&C reporting unit during the third quarter of 2020. See further discussion on the impairment charge under the heading "Goodwill / Intangibles" in the Critical Accounting Estimates section.
(3) Represents the tax rate differential between our actual effective tax rate for the ninethree months ended September 30, 2020March 31, 2021 and our projected annual effective tax rate as of September 30, 2020.March 31, 2021 as calculated under the estimated annual effective tax rate method. There was no tax rate differential recorded for the three months ended March 31, 2020 as we used the discrete effective tax rate method in the first quarter of 2020 (see further discussion on this method in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits" in our March 31, 2020 report on Form 10-Q).
The provision (benefit) for income taxes and the effective tax rate for the 2020 and 2019 three- and nine-month periods arethree months ended March 31, 2021 is determined based upon our current estimate of our annual effective tax rate at the end of each quarterly reporting period (the projected annual effective tax rate) plus the impact of certain discrete items that are not included in the projected annual effective tax rate. See further discussion around the methods utilized to compute interim taxes under the heading "Estimation of Taxes/Tax Credits" in the Critical Accounting Estimates section.
Our projected annual effective tax rates for 2020 and 2019 were 59.3% and (54.4%) at September 30, 2020 and 2019, respectively, before consideration of discrete items. Our projected annual effective tax rate as of September 30, 2020 and September 30, 2019 represents an expected benefit; however, the comparability of our projected annual effective tax rates is impacted by our projection of a pre-tax loss at September 30, 2020 compared to our projection of pre-tax income at September 30, 2019. Our projected annual effective tax rates at September 30, 2020 and 2019 and our effective tax rates for both the 2021 and 2020 and 2019 nine-monththree-month periods were different from the statutory federal income tax rate of 21% primarily due to the benefit recognized from the tax credits transferred to us from our tax credit partnership investments. TaxWe recognized tax credits recognizedof $3.4 million and $4.5 million during the three and nine months ended September 30,March 31, 2021 and 2020, were $4.5 million and $13.4 million, respectively, as compared to $4.6 million and $13.9 million for the same respective periods of 2019.respectively. While projected tax credits for 20202021 are less than 2019,2020, they continue to have a significant impact on the effective tax rate for the 2021 three-month period. For the 2020 three- and nine-month periods. Additionally, our projected annual effective tax rate as of September 30, 2020 includes the additional tax rate differential of 14% on the carryback of our 2020 NOL to the 2015 tax year as a result of changes made by the CARES Act to the NOL provisions of the tax law.
Our projected annual effective tax rates as of September 30, 2020 and 2019 differed from the effective tax rates due to certain discrete items. These discrete items decreasedthree-month period, our effective tax rate by 38.9% and increased our effective tax rate by 54.4% for the 2020 and 2019 nine-month periods, respectively. For the 2020 nine-month period, our pre-tax loss included a $161.1 million goodwill impairment recognized in relation to the Specialty P&C reporting unit during the third quarter of 2020 which was the most significant discrete item that impacted our effective tax rate. Of the $161.1 million goodwill impairment, $149.6 million was non-deductible for which no tax benefit was recognized while the remaining $11.5 million was deductible for which a 21% tax benefit was recognized. Consequently, the total impact of the goodwill impairment on the effective rate for the 2020 nine-month period was approximately 38.7%. See further discussion on this goodwill impairment in Notes 1 and 5 of the Notes to Condensed Consolidated Financial Statements. In addition, a significant discrete item thatalso affected our effective tax rate for the 2020 and 2019 nine-month periods was the treatment of net realized investment gains and losses. This treatment of net realized investment losses of $1.8 million for the nine months ended September 30, 2020 and net realized investment gains of $44.4 million for the nine months ended September 30, 2019 in our Corporate segment accounted for an increase of 0.2% and 55.4% in the effective tax rate in the same respective periods. An additional discrete item impacting our effective tax rates for the 2020 three- and nine-month periods isby the additional tax rate differential of 14% on the carryback of our 2019 NOL to the 2014 tax year as a result of changes made by the CARES Act to the NOL provisions of the tax law.

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Our effective tax rate for the 2021 three-month period, as shown in the table above, differed from our projected annual effective tax rate of (38.4 %) as of the first quarter of 2021 due to certain discrete items. These discrete items increased our effective tax rate by 47.1% for the 2021 three-month period mainly due to the treatment of net realized investment gains. When we utilize the estimated annual effective tax rate method, net realized investment gains or losses are treated as discrete items and reflected in the effective tax rate in the period in which they are included in income. This treatment of net realized investment gains of $8.0 million in our Corporate segment for the three months ended March 31, 2021 accounted for an increase of 19.8% in the effective tax rate.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We believe that we are principally exposed to three types of market risk: interest rate risk, credit risk and equity price risk. We have limited exposure to foreign currency risk as we issue few insurance contracts denominated in currencies other than the U.S. dollar and we have few monetary assets or obligations denominated in foreign currencies.
Interest Rate Risk
Investments
Our fixed maturities portfolio is exposed to interest rate risk. Fluctuations in interest rates have a direct impact on the market valuation of these securities. As interest rates rise, market values of fixed income portfolios fall and vice versa. Future market interest rates are particularly uncertain at this time given the abrupt interest rate cuts made by the Federal Reserve in response to the COVID-19 pandemic. Certain of the securities are held in an unrealized loss position; we do not intend to sell and believe we will not be required to sell any debt security held in an unrealized loss position before its anticipated recovery.
The following tables summarize estimated changes in the fair value of our available-for-sale fixed maturity securities for specific hypothetical changes in interest rates by asset class at September 30, 2020March 31, 2021 and December 31, 2019.2020. There are principally two factors that determine interest rates on a given security: changes in the level of yield curves and credit spreads. As different asset classes can be affected in different ways by movements in those two factors, we have separated our portfolio by asset class in the following tables.
Interest Rate Shift in Basis Points
March 31, 2021
($ in millions)(200)(100)Current100200
Fair Value:
Fixed maturities, available-for-sale:
U.S. Treasury obligations$110 $105 $103 $101 $96 
U.S. Government-sponsored enterprise obligations13 12 11 12 11 
State and municipal bonds368 337 322 309 282 
Corporate debt1,588 1,481 1,429 1,380 1,284 
Asset-backed securities748 715 698 676 632 
Total fixed maturities, available-for-sale$2,827 $2,650 $2,563 $2,478 $2,305 
Duration:
Fixed maturities, available-for-sale:
U.S. Treasury obligations2.362.322.272.232.18
U.S. Government-sponsored enterprise obligations1.551.922.822.972.93
State and municipal bonds4.714.524.374.524.71
Corporate debt3.673.593.513.463.39
Asset-backed securities2.362.422.873.253.41
Total fixed maturities, available-for-sale3.403.333.393.483.50

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 Interest Rate Shift in Basis Points
 September 30, 2020
($ in millions)(200) (100) Current 100 200
Fair Value:         
Fixed maturities, available-for-sale:         
U.S. Treasury obligations$124
 $121
 $117
 $114
 $111
U.S. Government-sponsored enterprise obligations11
 11
 11
 11
 10
State and municipal bonds347
 332
 319
 306
 294
Corporate debt1,403
 1,354
 1,308
 1,263
 1,221
Asset-backed securities658
 645
 631
 617
 600
Total fixed maturities, available-for-sale$2,543
 $2,463
 $2,386
 $2,311
 $2,236
          
Duration:         
Fixed maturities, available-for-sale:         
U.S. Treasury obligations2.87
 2.81
 2.75
 2.69
 2.63
U.S. Government-sponsored enterprise obligations1.87
 1.85
 2.42
 3.24
 3.38
State and municipal bonds4.16
 4.09
 4.03
 4.00
 3.98
Corporate debt3.59
 3.52
 3.43
 3.39
 3.33
Asset-backed securities2.42
 2.34
 2.30
 2.52
 2.83
Total fixed maturities, available-for-sale3.32
 3.25
 3.17
 3.20
 3.25


Interest Rate Shift in Basis PointsInterest Rate Shift in Basis Points
December 31, 2019December 31, 2020
($ in millions)(200) (100) Current 100 200($ in millions)(200)(100)Current100200
Fair Value:         Fair Value:
Fixed maturities, available-for-sale:         Fixed maturities, available-for-sale:
U.S. Treasury obligations$117
 $113
 $111
 $108
 $105
U.S. Treasury obligations$113 $110 $107 $104 $102 
U.S. Government-sponsored enterprise obligations18
 17
 17
 17
 16
U.S. Government-sponsored enterprise obligations13 13 12 12 12 
State and municipal bonds320
 308
 296
 285
 274
State and municipal bonds361 347 333 320 308 
Corporate debt1,425
 1,382
 1,340
 1,300
 1,261
Corporate debt1,427 1,377 1,329 1,284 1,241 
Asset-backed securities548
 537
 525
 511
 497
Asset-backed securities704 690 677 659 639 
Total fixed maturities, available-for-sale$2,428
 $2,357
 $2,289
 $2,221
 $2,153
Total fixed maturities, available-for-sale$2,618 $2,537 $2,458 $2,379 $2,302 
         
Duration:         Duration:
Fixed maturities, available-for-sale:         Fixed maturities, available-for-sale:
U.S. Treasury obligations2.78
 2.71
 2.64
 2.58
 2.52
U.S. Treasury obligations2.652.602.562.512.46
U.S. Government-sponsored enterprise obligations0.75
 0.71
 0.98
 3.07
 3.87
U.S. Government-sponsored enterprise obligations1.801.772.112.993.14
State and municipal bonds3.91
 3.84
 3.82
 3.89
 3.93
State and municipal bonds4.074.013.963.913.88
Corporate debt3.10
 3.04
 3.02
 3.01
 2.99
Corporate debt3.623.523.443.403.35
Asset-backed securities2.12
 2.21
 2.46
 2.73
 2.87
Asset-backed securities2.292.232.342.863.21
Total fixed maturities, available-for-sale2.95
 2.92
 2.96
 3.04
 3.07
Total fixed maturities, available-for-sale3.273.193.163.283.34
Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including the maintenance of the existing level and composition of fixed income security assets, and should not be relied on as indicative of future results.
Certain shortcomings are inherent in the method of analysis presented in the computation of the fair value of fixed rate instruments. Actual values may differ from the projections presented should market conditions vary from assumptions used in the calculation of the fair value of individual securities, including non-parallel shifts in the term structure of interest rates and changing individual issuer credit spreads.
At September 30, 2020,March 31, 2021, our fixed maturities portfolio includes fixed maturities classified as trading securities which do not have a significant amount of exposure to market interest rates or credit spreads.
Our cash and short-term investments at September 30, 2020March 31, 2021 were carried at fair value which approximates their cost basis due to their short-term nature. Our cash and short-term investments lack significant interest rate sensitivity due to their short duration.
Debt
Our Mortgage Loans are exposed to interest rate risk as they accrue interest at three-month LIBOR plus 1.325%. However, a 1% change in LIBOR will not materially impact our annualized interest expense. Additionally, we have economically hedged the risk of a change in interest rates in excess of 1% on the Mortgage Loans through the purchase of an interest rate cap derivative instrument, which effectively caps our annual interest rate on the Mortgage Loans at a maximum of 3.675% (see Note 1211 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 20192020 report on Form 10-K for additional information). The fair value of the interest rate cap is not materially impacted by a 1% change in LIBOR; however, the carrying value of the interest rate cap is impacted by future expectations for LIBOR as well as estimations of volatility in the future yield curve.
Our Revolving Credit Agreement is exposed to interest rate risk as it is LIBOR based and a 1% change in LIBOR will impact annual interest expense only to the extent that there is an outstanding balance. For every $100 million drawn on our Revolving Credit Agreement, a 1% change in interest rates will change our annual interest expense by $1 million. Any outstanding balances on the Revolving Credit Agreement can be repaid on each maturity date, which has typically ranged from one to three months. As of September 30, 2020,March 31, 2021, no borrowings were outstanding under our Revolving Credit Agreement.

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Credit Risk
We have exposure to credit risk primarily as a holder of fixed income securities. We control this exposure by emphasizing investment grade credit quality in the fixed income securities we purchase.
As of September 30, 2020, 93%March 31, 2021, 94% of our fixed maturity securities were rated investment grade as determined by NRSROs, such as Fitch, Moody’s and Standard & Poor’s. We believe that this concentration in investment grade securities reduces our exposure to credit risk on our fixed income investments to an acceptable level. However, investment grade securities, in spite of their rating, can rapidly deteriorate and result in significant losses. Ratings published by the NRSROs are one of the tools used to evaluate the creditworthiness of our securities. The ratings reflect the subjective opinion of the rating agencies as to the creditworthiness of the securities; therefore, we may be subject to additional credit exposure should the ratings prove to be unreliable.
We also have exposure to credit risk related to our premiums receivable and receivables from reinsurers; however, to-date we have not experienced any significant amount of credit losses. At September 30, 2020,March 31, 2021, our premiums receivable was approximately $238$211 million, net of an allowance for expected credit losses of approximately $7$6 million. See Note 1 of the Notes to the Condensed Consolidated Financial Statements for further information on our allowance for expected credit losses related to our premiums receivable. Our receivables from reinsurers (with regard to both paid and unpaid losses) approximated $405$404 million at September 30, 2020March 31, 2021 and $403$399 million at December 31, 2019.2020. We monitor the credit risk associated with our reinsurers using publicly available financial and rating agency data. We have not historically experienced material credit losses due to the financial condition of a reinsurer, and as of September 30, 2020March 31, 2021 our expected credit losses associated with our receivables from reinsurers were nominal in amount. During the three and nine months ended September 30, 2020, we have received and
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granted requests for premium relief for certain insureds that have been adversely impacted by the recent COVID-19 pandemic in the formTable of either premium credits or premium deferrals. These efforts, along with the recent economic disruptions caused by COVID-19, may result in future increases in our allowance for expected credit losses associated with our premiums and reinsurance receivables.Contents
Equity Price Risk
At September 30, 2020, the fair value of our equity investments, excluding our equity investments in bond investment funds as discussed in the following paragraph, was $33 million. These equity securities are subject to equity price risk, which is defined as the potential for loss in fair value due to a decline in equity prices. Disruptions in global financial markets related to COVID-19 have resulted in volatility in the fair value of our equity securities during 2020. We cannot predict the level of market disruption and subsequent declines in fair value that may occur should the COVID-19 pandemic and its related macro-economic impacts continue for an extended period of time. The weighted average beta of this group of securities was 1.10. Beta measures the price sensitivity of an equity security or group of equity securities to a change in the broader equity market, in this case the S&P 500 Index. If the value of the S&P 500 Index increased by 10%, the fair value of these securities would be expected to increase by 11.0% to $37 million. Conversely, a 10% decrease in the S&P 500 Index would imply a decrease of 11.0% in the fair value of these securities to $30 million. The selected hypothetical changes of plus or minus 10% do not reflect what could be considered the best or worst case scenarios and are used for illustrative purposes only.
Our equity investments include equity investments in certain bond investment funds which are not subject to significant equity price risk, and thus we have excluded these investments from the above analysis.

ITEM 4. CONTROLS AND PROCEDURES.
The principal executive officer and principal financial officer of the Company participated in management’s evaluation of our disclosure controls and procedures (as defined in SEC Rule 13a-15(e)) as of September 30, 2020.March 31, 2021. ProAssurance’s disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding disclosure and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based on that evaluation, the principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, those controls during the quarter.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 78 of the Notes to Condensed Consolidated Financial Statements.
ITEM 1A. RISK FACTORS.
Our results may differ materially from those we expect and discuss in any forward-looking statements. The principal risk factors that may cause these differencesThere are described in "Item 1A, Risk Factors" in our December 31, 2019 report on Form 10-K and other documents we file with the SEC, such as our current reports on Form 8-K. Other than as described below, there have been no material changes to the "Risk Factors" disclosed in Part 1, Item 1A of ProAssurance's December 31, 20192020 report on Form 10-K.
The Company's results of operations could be adversely impacted by catastrophes, both natural and man-made, pandemics, severe weather conditions, climate change or closely related series of events.
Catastrophes can be caused by unpredictable natural events such as hurricanes, windstorms, severe storms, tornadoes, floods, hailstorms, severe winter weather, earthquakes, explosions and fire, and by other natural and man-made events, such as terrorist attacks, as well as pandemics and other similar outbreaks in many parts of the world, including the recent outbreak of a coronavirus referred to as “COVID-19”. These events may have a material adverse effect on our workforce and business operations as well as the workforce and operations of our insureds and independent agents. Some of the assets in our investment portfolio may be adversely affected by declines in the equity markets, changes in interest rates, reduced liquidity and economic activity caused by large-scale catastrophes, pandemics, terrorist attacks or similar events which could have a material adverse effect on our financial position, results of operations and liquidity.
The Company's disaster preparedness encompasses our Business Continuity Plan, Disaster Recovery Plan, Operations Plan and Pandemic Response Plan. Our disaster preparedness is focused on maintaining the continuity of the Company's data processing and network and telecommunications system as well as the use of alternate and temporary facilities in the event of a natural disaster or medical event. The Company's plans are externally reviewed during the insurance department examinations of the statutory insurance companies. While the Company has plans in place to respond to both short- and long-term disaster scenarios, the loss of certain key operating facilities or data processing capabilities could have a significant impact on Company operations.
The impact of the COVID-19 pandemic and related general economic conditions could have a material adverse effect on our results of operations, financial position or liquidity.
The continuing global COVID-19 pandemic has impacted the global economy, financial markets and our results of operations. Because of the size and breadth of this pandemic, all of the direct and indirect consequences of COVID-19 are not yet known and may not emerge for some time. Impacts to our results of operations could be widespread and material, including but not limited to, the following:
negative impact on premium volume due to reduced demand and decreased insured exposures due to the impact of COVID-19 on general economic activity, especially for lines of business that are sensitive to rates of economic growth and those that are impacted by audit premium adjustments;
negative impact on expense ratios due to reduced premium volume;
reduced cash flows from premium credits and from our policyholders delaying premium payments;
increases in frequency and/or severity of compensable claims, losses litigation and related expenses;

losses from COVID-19 related claims could be greater than our reserves for those losses;
government mandates and/or legislative changes in response to COVID-19, including, but not limited to: actions prohibiting an insurance company from canceling insurance policies in accordance with policy terms; requiring an insurance company to cover losses when its policies specifically excluded coverage or did not provide coverage; preventing an insurance company from filing for a rate increase; ordering an insurance company to provide premium refunds; granting premium grace periods and presumed COVID-19 compensability for all or certain occupational groups;
continued volatility and further disruption in global financial markets that could materially affect our investment portfolio valuations and returns;
declining interest rates which could reduce future investment results;
increased credit risk;
increased cybersecurity risk as criminals seek new ways to target shifting business models; and
business disruption to independent insurance agents and brokers.
We are taking precautions to protect the safety and well-being of our employees while providing uninterrupted service to our policyholders and claimants. It is not possible at this time to estimate the impact that COVID-19 could have on our results of operations and financial condition, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. Further, to the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in "Risk Factors" as disclosed in Part 1, Item 1A of ProAssurance's December 31, 2019 report on Form 10-K.
There are numerous risks and uncertainties around the Company's planned acquisition of NORCAL
We have entered into a definitive agreement to acquire NORCAL, an underwriter of medical professional liability insurance, subject to the demutualization of NORCAL Mutual, NORCAL's ultimate controlling party. See Note 7 of the Notes to Condensed Consolidated Financial Statements for further information. If consummated, the transaction will provide strategic and financial benefits including additional scale and geographic diversification in the physician professional liability market and is expected to be accretive to earnings over time; nevertheless, there are numerous risks and uncertainties around the transaction. The completion of our planned acquisition of NORCAL is subject to a number of conditions, including required regulatory approvals. The failure to satisfy all the required conditions could prevent the acquisition from occurring. In addition, regulators could impose additional requirements or obligations as conditions for their approval. We can provide no assurance that we will obtain the necessary approvals within the estimated timeframe or at all, or that any such requirements that are imposed by regulators would not result in the termination of the transaction. Investors’ reactions to a failure to complete the acquisition of NORCAL, including possible speculation about alternative uses of capital, may cause volatility in our stock price. A failure to complete a proposed transaction of this nature could also result in litigation by stockholders and other affected parties.
In addition, even if we complete the proposed NORCAL acquisition, we may not be able to successfully integrate NORCAL into our business and therefore may not be able to achieve the synergies we would expect as a result of the acquisition. The process of integrating an acquired company or business can be complex and costly and may create unforeseen operating difficulties including ineffective integration of underwriting, risk management, claims handling, finance, information technology and actuarial practices and the design and operation of internal controls over financial reporting. Difficulties integrating an acquired business may also result in the acquired business performing differently than we expected including the loss of customers or in our failure to realize anticipated growth or expense-related efficiencies. We could be adversely affected by the acquisition due to unanticipated performance issues and additional expense, unforeseen or adverse changes in liabilities, including liabilities arising from events prior to the acquisition or that were unknown to us at the time of the acquisition, transaction-related charges, diversion of management time and resources to integration challenges, loss of key employees, regulatory requirements, exposure to tax liabilities, exposure to pension liabilities, amortization of expenses related to intangibles, and charges for impairment of assets or goodwill. Furthermore, the significant disruptions on global financial markets as of result of the recent COVID-19 pandemic could impact the future operating performance of NORCAL negatively, as well as negatively impact the fair value of its assets and liabilities. Therefore, our liquidity may be adversely impacted should NORCAL's operating performance deteriorate, requiring our holding company to infuse capital into NORCAL or preventing the ability to distribute capital from NORCAL to our holding company due to regulatory restrictions or other reasons.
In early 2021, we plan to utilize debt financing to partially fund our acquisition of NORCAL. The COVID-19 pandemic’s potential disruption to our business operations may require us to access our Revolving Credit Agreement which we have anticipated utilizing to partially fund the NORCAL transaction. Thus, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. There can be no assurance that we will be able to

obtain additional financing or refinancing, if needed, on terms acceptable to us or at all. If we are not able to access capital on acceptable terms, we may encounter difficulty funding the transaction, our business requirements, including debt repayments when they become due, or both. In addition, due to the impacts of the COVID-19 pandemic, we could experience loss of revenue and profits due to delayed payments or insolvency of insureds facing liquidity issues as well as lower yields on our investment portfolio. As a result, we may be compelled to take additional measures to preserve our cash flow, including the reduction of operating expenses or reduction or suspension of dividend payments, at least until the impacts of the COVID-19 pandemic improve.
Increased levels of indebtedness associated with the NORCAL transaction or due to meeting our operational needs could make us more vulnerable to general adverse economic, regulatory and industry conditions in a period of uncertainty and volatility. This indebtedness could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing interest expense. The increased levels of indebtedness following completion of the acquisition could also reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages relative to other companies with lower debt levels. If we do not achieve the expected benefits and cost savings from the NORCAL acquisition, or if the financial performance of the combined company does not meet current expectations, our ability to service our indebtedness may be adversely impacted.
Any of these events could materially adversely affect our business, financial condition, results of operations, cash flows, liquidity and stock price.
We are subject to numerous NYSE and SEC regulations including insider trading regulations, Regulation FD and the Securities Exchange Act of 1934 requiring timely and accurate reporting of our results as well as certain events and transactions. Noncompliance or alleged noncompliance with these regulations could subject us to enforcement actions by the NYSE or the SEC, or to other litigation, which could affect the value of our shares and our ability to raise additional capital.
The Company carefully adheres to NYSE and SEC requirements as the loss of trading privileges on the NYSE or an SEC enforcement action could have a significant financial impact on the Company. Failure to comply with various SEC reporting and record keeping requirements could result in a decline in the value of our stock or a decline in investor confidence which could directly impact our ability to efficiently raise capital. Failure to comply with SEC regulations could result in enforcement actions or litigation. Failure to adhere to NYSE requirements could result in fines, trading restrictions or delisting.
In June 2020, a putative class action lawsuit was filed against the Company in the Northern District of Alabama, alleging violations of the Securities Exchange Act of 1934 related to allegedly false and misleading statements the Company made regarding its Specialty Property and Casualty segment. The Company believes the lawsuit is without merit and intends to defend it vigorously; however, there can be no assurance regarding the ultimate outcome of the matter.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a)Not applicable.
(b)Not applicable.
(c)Information required by Item 703 of Regulation S-K.
(a)Not applicable.
(b)Not applicable.
(c)Information required by Item 703 of Regulation S-K.
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs* (In thousands)
JulyJanuary 1 - 31, 20202021—
N/A—
$109,643
AugustFebruary 1 - 28, 2021— N/A— $109,643
March 1 - 31, 20202021—
N/A—
$109,643
September 1 - 30, 2020Total—
N/A$——
$109,643
Total—
$——
*Under its current plan begun in November 2010, the Board has authorized $600 million for the repurchase of common shares or the retirement of outstanding debt. This is ProAssurance’s only plan for the repurchase of common shares, and the plan has no expiration date.

*Under its current plan begun in November 2010, the Board has authorized $600 million for the repurchase of common shares or the retirement of outstanding debt. This is ProAssurance’s only plan for the repurchase of common shares, and the plan has no expiration date.

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ITEM 6. EXHIBITS
Exhibit NumberDescription
Exhibit NumberDescriptionAmendment No. 1 to amended and restated Revolving Credit Agreement, dated as of April 19, 2021, between ProAssurance and U.S. Bank N.A., Wells Fargo Bank N.A., Keybank N.A., Regions Bank, Trust Bank, Cadence Bank N.A., and First Horizon Bank
Certification of Principal Executive Officer of ProAssurance as required under SEC rule 13a-14(a).
Certification of Principal Financial and Accounting Officer of ProAssurance as required under SEC rule 13a-14(a).
Certification of Principal Executive Officer of ProAssurance as required under SEC Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as amended (18 U.S.C. 1350).
Certification of Principal Financial and Accounting Officer of ProAssurance as required under SEC Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as amended (18 U.S.C. 1350).
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Labels Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document


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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PROASSURANCE CORPORATION
November 5, 2020May 7, 2021
 
/s/    Dana S. Hendricks
Dana S. Hendricks
Chief Financial Officer
(Duly authorized officer and principal financial officer)

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